United States securities and exchange commission logo
November 17, 2023
Leah Wald
Chief Executive Officer
Valkyrie Bitcoin Fund
c/o Valkyrie Digital Assets LLC
320 Seven Springs Way, Suite 250
Brentwood, TN 37027
Re: Valkyrie Bitcoin
Fund
Amendment No. 3 to
Registration Statement on Form S-1
Filed October 30,
2023
File No. 333-252344
Dear Leah Wald:
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. 3 to Registration Statement on Form S-1
General
1. To the extent that you
intend to use a fact sheet, please provide us a copy for our review.
2. Please revise to
disclose whether and to what extent the Trust, Sponsor, Prime Broker,
Liquidity Providers or
any other entity is permitted to loan, pledge or rehypothecate any of
the Trust s assets.
3. Please describe the
AML, KYC and any other procedures conducted by the Trust, the
Sponsor, the Authorized
Participants, the Prime Broker, the Liquidity Providers, and the
Custodian to determine,
among other things, whether the counter-party in any transactions
is not a sanctioned
entity.
Leah Wald
FirstName LastNameLeah Wald
Valkyrie Bitcoin Fund
Comapany 17,
November NameValkyrie
2023 Bitcoin Fund
November
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Cover Page
4. Please revise the cover page to identify the initial Authorized
Participant, and revise your
disclosure on the cover page and page 74 to identify the initial
Authorized Participant as a
statutory underwriter. Also revise the cover page to disclose the
price per Share and that
the Trust is registering an indeterminate number of Shares.
Lukka Prime, page 1
5. Please revise your description of Step 3 on page 2 to clarify what you
mean by "decay,"
including what is considered in determining "decay," how the adjusted
score is "decayed"
and, to the extent applicable, disclose the decay rate. For example
purposes only, this step
appears to look only at the time passed since the last trade but we
note that you disclose
that this step assesses "the level of activity in market by
considering the frequency
(volume) of trades" and "reflects freshness of date by tracking most
recent trades."
6. We note your disclosure identifies the Index Pricing Sources used as
of December 2022.
Please update your disclosure here and throughout to identify the
Index Pricing Sources
currently used.
Prospectus Summary
Trust Overview, page 1
7. Please disclose here that the Trust is a passive investment vehicle.
Please also revise to
disclose, if true, that Shareholders have no voting rights. In this
regard, we note your
disclosure on pages 65 that Shareholders have no voting rights under
the Trust
Agreement. We also note your disclosure on page 58 that, "[u]nder the
Trust Agreement,
Shareholders have limited voting rights," including, for example, that
"the Sponsor will
terminate the Trust upon the agreement of Shareholders owning at least
75% of the
outstanding Shares" and that "any amendment that adversely affects the
rights of
Shareholders, appoints a new Sponsor, dissolves the Trust or makes any
material change
to the Trust s basic investment policies or structure must be
approved by the affirmative
vote of Shareholders owning at least 50% of the outstanding Shares."
Please revise for
clarity and consistency throughout.
8. Please revise to provide quantitative information that demonstrates
the volatility of the
price of bitcoin.
9. Please revise your disclosure 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 determinantal effect on the scale and sustainability of
your product.
Custody of the Trust's Assets, page 2
10. Please revise to clarify what you mean by your disclosure on page 2
that the Custodian
Leah Wald
FirstName LastNameLeah Wald
Valkyrie Bitcoin Fund
Comapany 17,
November NameValkyrie
2023 Bitcoin Fund
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will custody the Trust's bitcoin in accounts that are required to be
segregated "from time
to time" by explaining what "from time to time" means in this context.
In addition, we
note your disclosure 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
(the Cold Vault Balance ), with any remainder of the Vault
Balance held as part of a hot
storage (the Hot Vault Balance )." Please revise to disclose
the percentage of the
private keys that are held in cold storage, and, on page 58, disclose
the Custodian's
policies regarding whether and when the private keys are held in cold
or hot storage, and
describe the "similarly secure technology." Also, we note that a
portion of the Trust's
bitcoin holdings and cash holdings may be held with Coinbase, the
Prime Broker, in
connection with creations and redemptions and with the sale of bitcoin
to pay the Trust's
expenses not assumed by the Sponsor. Please revise to disclose here
the Prime
Broker's policies regarding how it will hold the Trust's assets. In
addition, please include
a summary of the insurance coverage of the Custodian and Prime Broker
and the degree to
which the insurance policies protect the Trust's assets held by the
Custodian and Prime
Broker as well as the Custodian's policies regarding the amount of the
Trust's assets
held in each wallet.
Trust Structure, page 2
11. We note your disclosure on page 2 that "[t]he Trust has entered into a
prime brokerage
and custody agreement with the Custodian (the Custody Agreement
), pursuant to which
the Custodian will custody all of the Trust s bitcoin, other than
that which may be
maintained in a trading account with Coinbase from time to time."
Please revise to
clarify, here, if true that the Custodian and Prime Broker are
affiliates but not the same
entity.
Trust expenses, page 5
12. Please revise to disclose whether the Trust is responsible for paying
any costs associated
with the transfer of bitcoin to the Sponsor or the sale of bitcoin to
pay the Additional
Expenses or if such costs are included in the Sponsor's Fee. Please
also disclose whether
any of the Trust's expenses payable by the Sponsor from the Sponsor's
Fee are capped. In
addition, please revise to disclose how the Actual Exchange Rate is
calculated.
13. We note your disclosure on page 5 that "[i]f Additional Trust Expenses
are incurred, the
Sponsor will cause the Custodian to convert bitcoin into U.S. Dollars
or other fiat
currencies." Please revise to identify the "other fiat currencies."
Risk Factors, page 6
14. Please revise to include a summary of the risk factors section
immediately following your
prospectus summary section pursuant to Item 105(b) of Regulation S-K.
15. We note that many of your risk factors address several different risks
but only highlight
one risk in the heading. For example, we note that the first risk
factor that begins on page
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FirstName LastNameLeah Wald
Valkyrie Bitcoin Fund
Comapany 17,
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2023 Bitcoin Fund
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18 and continues on page 19 currently addresses the risks related to
whether the Sponsor
may be subject to additional regulatory requirements under the
Investment Company Act
of 1940, increasing regulation in foreign jurisdictions and the risks
related to the high
energy usage required for bitcoin mining. Please revise to divide this
risk factor into
several risk factors, including a risk factor with a heading that
highlights the risks related
to the environmental impact of bitcoin mining. In this new risk
factor, 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 discuss in
greater detail the
regulations that states and foreign jurisdictions have passed or are
currently considering
that impact crypto asset mining. Similarly, please revise to include
separate risk factors
that specifically highlight the risks related to wash-trading, the
existence of bitcoin
"whales" and the concentration in bitcoin ownership, front-running and
manipulation. In
this regard, we note that your disclosure on pages 22 and 23
identifies many of the these
risks in a single risk factor but does not discuss them in detail and
does not highlight these
risks in the heading.
Risk Factors Related to the Trust and the Shares
The Shares may trade at a price which is at, above or below the Trust's Bitcoin
Holdings per
Share, page 25
16. Please revise to remove the reference to a "riskless profit" as it
appears to be inconsistent
with your disclosure regarding the volatility of bitcoin as well as
the other risks you
address related to the Bitcoin market in general and the creation and
redemption processes
of the Trust.
If the Custody Agreement is terminated or the Custodian fails, page 30
17. Your disclosure on page 30 that the Custodian facilitates the selling
of bitcoin by the Trust
to pay the Sponsor's Fee appears to be inconsistent with your
disclosure on page 5 that the
Sponsor's Fee is payable in bitcoins. Please revise for clarity and
consistency.
There is no guarantee that an active trading market for the Shares will
continue, page 31
18. We note your disclosure on page 31 that "[t]he Sponsor may elect to
terminate the Trust if
it determines, in its sole discretion, that the Trust is not an
economically viable size, which
could result in the liquidation of the Trust s bitcoins at a time
that is disadvantageous to
Shareholders." Please revise to quantify or otherwise describe what
"economically viable
size" means.
Trust Expenses, page 47
19. Please revise to disclose examples of when the the Sponsor may waive
all or a portion of
the Sponsor's Fee, and disclose where the Sponsor will publish the
daily calculation of the
fee. Also disclose whether the Sponsor will use any other means to
notify Shareholders of
the "stated periods of time" that it has waived all or a portion of
the Sponsor's Fee, and, if
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so, how. Similarly, revise to disclose examples of when the Sponsor
may raise the
Sponsor's Fee or decrease the Sponsor-paid expenses, and disclose
whether the Sponsor
will use any other means to notify Shareholders, and if so, how. In
this regard, we note
your disclosure in the fifth risk factor on page 31.
20. Please revise to describe the mechanics of how the Custodian will
convert the bitcoin into
U.S. Dollars or other fiat currencies, including the roles of the
Prime Broker and any other
Service Provider, whether the transfers to any Service Providers in
connection with the
sale of the bitcoin will occur on-chain or off-chain, how the Actual
Exchange Rate is
determined, the policies regarding where the bitcoin will be sold, who
decides where the
bitcoin will be sold and any risks related to the this process.
Use of the Lukka Prime Reference Rate, page 48
21. With reference to the disclosure on page 49 of liability limitations
in the last two
paragraphs regarding the Use of the Lukka Prime Reference Rate, the
disclosures do not
appear to be consistent with management's obligations with respect to
the financial
statements, including the determination of the fair value of assets
within those financial
statements under U.S. GAAP. Please revise or tell us why you believe
the statements are
consistent with those obligations.
22. Please disclose whether the Index Provider has an oversight committee
that determines the
Index Pricing Sources and evaluates the Index's methodology. If so,
please disclose how
many members are on the committee, how the committee members are
selected, how
often the committee meets to consider changes to the Index's
methodology and any
changes that have been made to the Index since the creation of the
Index. Please also
disclose any changes that have been made to the Index Pricing Sources
since the creation
of the Index and why those changes were made, and please disclose
whether, and, if so,
how Shareholders will be notified of changes to the Index's
methodology. In addition,
please provide a brief description of each Index Pricing Source,
including where they are
located, how they are licensed or regulated, the aggregate monthly,
quarterly or annual
trading volume of BTC/USD markets of each Index Pricing Source and the
market share
for BTC/USD trading of each Index Pricing Source. Further, please
briefly describe the
Index Provider's oversight procedures to ensure that the Index is
administered pursuant to
its policies for Index integrity. Also disclose the Index
Provider's procedures if information from one or more of the Index
Pricing Sources is
unavailable during a Business Day, and disclose the Index's
methodology related to forks
and Incidental Rights.
23. Please revise to expand your description of the five-step weighting
process for identifying
the principal exchange for bitcoin and the last price on that
exchange. For example, for
Step 1, describe how the BES is assigned to each Index Pricing Source,
how often the
BES is recalculated as we note that it is based on "static exchange
characteristics such as
oversight microstructure and technology" and provide a brief
description of what you
mean by "microstructure." For Step 2, describe how the BES is adjusted
based on the
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Valkyrie Bitcoin Fund
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2023 Bitcoin Fund
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"relative monthly volume each exchange services," clarify what you
mean by "relative
monthly volume" and disclose how many months are considered in this
evaluation. For
Step 3, clarify what you mean by "decay," and clarify your description
of how the
adjusted score is "decayed" as it seems to look only at the time
passed since the last trade
but you disclose that it assesses "the level of activity in the market
by considering the
frequency (volume) of trades" and "reflects the freshness of data by
tracking most recent
trades." For Step 5, please disclose which "executed exchange price is
used to represent
fair market value at 4:00 p.m. ET."
Calculation of NAV, page 49
24. We note your response to prior comment 8. 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).
Confirm for us that your principal market will be one which you or
your Authorized
Participant will be able to access and clarify for us whether you
anticipate your
principal market will be one in which you or your Authorized
Participant will
normally transact. Refer to ASC Topics 820-10-35-6A and
820-10-35-5A
respectively.
In your disclosures on pages 1 and 48, you disclose your intention
to engage a third
party to obtain a price from a principal market for bitcoin, and
that price will form the
basis for you determination of fair value in accordance with GAAP.
Please explain
how your determination of a principal market for bitcoin is
consistent with the
guidance in ASC Topic 820-10-35-6A which states the principal
market shall be
considered from the perspective of the reporting entity.
25. On page 50, you include a list of steps identified as showing how the
Trust's NAV is
calculated. However, as the steps appear to show how the NAV per Share
is calculated,
please revise to clarify.
26. Please disclose what policies or procedures you have in place if the
Index becomes
unavailable or if the Sponsor determines that the Index does not
reflect an accurate bitcoin
price. In this regard, we note that on a daily basis the Sponsor's
Valuation Team considers
the Index's bitcoin price.
Leah Wald
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Valkyrie Bitcoin Fund
Comapany 17,
November NameValkyrie
2023 Bitcoin Fund
November
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Intraday Indicative Value, page 50
27. We note your disclosure that the intraday indicative value 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 Index Provider or
another reporting service. Please revise to clarify how the intraday
indicative value is
calculated and how it is updated throughout the day.
The Sponsor, page 52
28. Please discuss here the Sponsor's experience sponsoring exchange
traded funds and
specifically its experience related to crypto asset markets. In
addition, please revise here
or elsewhere to disclose the material terms, including the term and
termination provisions,
of the agreements with all of the Trust's Service Providers, including
the Prime Broker
and Liquidity Providers.
Management of the Sponsor, page 53
29. Please revise to include the information required by Item 401 of
Regulation S-K.
Redemption of Shares, page 58
30. We note your disclosure on page 58 that "the Trust and an affiliate of
the Trust recently
entered into a settlement agreement with the SEC concerning the
operation of the Trust's
former redemption program." Please revise to disclose the settlement
agreement in an
appropriate section of your prospectus, and add risk factor disclosure
addressing the
settlement agreement.
Custody of the Trust's Bitcoins, page 59
31. Please revise to discuss your custody procedures in greater detail,
identify the Trust's Cash
Custodian, and describe the material terms of the Trust's agreement
with the Cash
Custodian. In addition, please disclose the material terms of the
Trust's agreement with
the Custodian. For example, describe (i) the procedures for moving the
Trust's assets out
of cold storage in connection with redemptions, the payment of the
Sponsor's Fee, and the
payment of the Additional Expenses, (ii) the procedures for moving
bitcoin into cold
storage in connection with creations, (iii) the percentage of the
Trust's private keys held in
cold storage, (iv) the geographic location of where the Trust's assets
will be stored, (v) the
amount of the Trust's assets held in each wallet, (vi) the insurance
coverage of the
Custodian, (vii) the degree to which the insurance policy protects the
Trust's assets held
by the Custodian, (viii) the Custodian's policies related to
Incidental Rights and (ix)
whether the Sponsor has provided instructions to the Custodian
regarding airdrops or
forks.
32. We note your disclosure on page 58 that "[t]o the extent the Trust
maintains a Trading
Balance with Coinbase, such short-term holdings represent an omnibus
claim on
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Valkyrie Bitcoin Fund
Comapany 17,
November NameValkyrie
2023 Bitcoin Fund
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Coinbase s bitcoin held on behalf of clients." Please revise to
describe the omnibus claim
and the degree of protection that this provides to the Trust's assets.
In addition, here or
elsewhere please identify the trading venues in which the Prime Broker
may hold and
trade the Trust's assets.
Description of Creation and Redemption of Shares, page 60
33. Please revise your disclosure here to provide a detailed discussion of
the mechanics of
creation and redemption transactions conducted pursuant to the
Conversion Procedures
and otherwise, including (i) whether your Authorized Participants will
be required to
maintain an account with the Custodian, the Prime Broker and/or the
Liquidity Providers,
(ii) whether and how the Authorized Participants are able to
participate directly in the
acquisition, transfer or receipt of bitcoin, (iii) why and under what
circumstances the
Authorized Participants will utilize Liquidity Providers to deliver
bitcoin to the Prime
Broker, (iv) whether the Authorized Participants and Liquidity
Providers can transfer the
bitcoin directly to the Custodian or whether the bitcoin must be first
transferred to the
Prime Broker, (v) to the extent that the Authorized Participants and
Liquidity Providers
transfer the bitcoin to the Prime Broker in connection with creations,
the amount of time it
takes for the bitcoin to be deposited with the Custodian, (vi)
whether, when the bitcoin is
transferred to the Custodian, the Authorized Participant will be
responsible for the cost to
the extent that it is an on-chain transaction, (vii) whether and to
what extent each transfer
made in connection with the creation and redemption transactions
conducted pursuant to
the Conversion Procedures and otherwise will be settled on-chain or
off-chain and (viii)
any risks associated with the settlement process. Also, please provide
a detailed
description of how the Administrator calculates the Bitcoin Holdings
and Bitcoin
Holdings per Share in connection with redemptions and creations. In
addition, please
revise your summary disclosure on page 4 to summarize the mechanics of
the creations
and redemptions that are conducted pursuant to the Conversion
Procedures and those that
are not so that investors understand the role of the Authorized
Participants, the Liquidity
Providers, the Prime Broker, the Custodian, the Sponsor and the
Transfer Agent in
connection with creations and redemptions. Further, please revise to
identify the
Liquidity Providers, and disclose the material terms of the agreements
with the Prime
Broker and Liquidity Providers.
34. We note your disclosure on page 49 that "[t]he Trust's NAV is an
amount denominated in
U.S. dollars and is not utilized in determining the number of Shares
that an Authorized
Participant will receive in creating Shares, or the number of bitcoin
that an Authorized
Participant will receive in redeeming Shares, as those transactions
are effected in-kind in
bitcoins based on the Trust s bitcoin holdings per Share." Please
revise here to
disclose how the Trust's Bitcoin Holdings Per Share is calculated. In
addition, please
include a separate subsection that describes the in-cash creation and
redemption
procedures, including how the in-cash purchase orders per basket are
calculated. In this
regard, we note your disclosure on page 6 that "Liquidity Providers
facilitate the purchase
and sale of bitcoins on behalf of Authorized Participants creating or
redeeming Shares in-
Leah Wald
Valkyrie Bitcoin Fund
November 17, 2023
Page 9
cash."
Suspension or Rejection of Redemption Orders, page 62
35. Please expand this section to address the rejection or suspension of
creation orders. Also
expand your disclosure here to describe what is deemed as an
"emergency" such that the
delivery, disposal or evaluation of bitcoin 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.
36. 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.
Governing Law; Consent to Delaware Jurisdiction, page 66
37. We note your disclosure on page 66 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.
Termination of the Trust, page 69
38. We note your disclosure on page 6 that "[u]pon dissolution of the Trust
and surrender of
Shares by the Shareholders, Shareholders will receive a distribution in
U.S. Dollars or in
bitcoins, at the sole discretion of the Sponsor, after the Sponsor has
paid or made
provision for the Trust s obligations." Please revise your disclosure
here and under
Distributions on page 58 to clarify that Shareholders may receive a
distribution in U.S.
Dollars or in bitcoin. Please also clarify what you mean by your
disclosure that "[t]he
Sponsor would be subject to the same regulatory requirements as the
Trust, and therefore,
FirstName LastNameLeah Wald
the markets available to the Sponsor will be the same markets available
to the Trust" by
Comapany NameValkyrie
briefly Bitcoin
identifying the Fund requirements" and by explaining which
markets are
"regulatory
available
November to the
17, 2023 Trust.
Page 9
FirstName LastName
Leah Wald
FirstName LastNameLeah Wald
Valkyrie Bitcoin Fund
Comapany 17,
November NameValkyrie
2023 Bitcoin Fund
November
Page 10 17, 2023 Page 10
FirstName LastName
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,
Division of Corporation
Finance
Office of Crypto Assets