2024-22903. Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To ...

Constituents	Weight (%)
Bitcoin (BTC)	70.54
Ether (ETH)	29.46

The Sponsor will employ a passive investment strategy that is intended to track the changes in the Index regardless of whether the Index goes up or goes down, meaning that the Sponsor will not try to “beat” the Index. The Trust's passive investment strategy is designed to allow investors to purchase and sell the Shares for the purpose of investing in the Index, whether to hedge the risk of losses in their Index-related transactions or gain price exposure to the Index. The Trust's investments will be consistent with the Trust's investment objective and will not be used to enhance leverage. That is, given its passive investment strategy, the Trust's investments will not be used to seek performance that is the multiple or inverse multiple ( e.g., 2Xs, 3Xs, −2Xs, and −3Xs) of the Trust's Index.

None of the Trust, the Sponsor, any Crypto Custodian, or any other person associated with the Trust will, directly or indirectly, engage in action where any portion of the Trust's ether becomes subject to the Ethereum proof-of-stake validation or is used to earn additional ether or generate income or other earnings.

From time to time, the Trust may be entitled to or come into possession of “Incidental Rights” and/or “IR Virtual Currency” by virtue of its ownership of bitcoin or ether, generally through a fork in the Bitcoin or Ethereum blockchain, an airdrop offered to holders of bitcoin or ether or other similar event. “Incidental Rights” are rights to acquire, or otherwise establish dominion and control over, any crypto asset (for the avoidance of doubt, other than bitcoin and ether) or other asset or right, which rights are incident to the Trust's ownership of bitcoin or ether and arise without any action of the Trust or of the Sponsor. “IR Virtual Currency” is any crypto asset (other than bitcoin or ether), or other assets or rights, acquired through the exercise of any Incidental Right.

With respect to a fork, airdrop or similar event, the Sponsor will cause the Trust to permanently and irrevocably abandon any such Incidental Rights and IR Virtual Currency and no such Incidental Right or IR Virtual Currency shall be taken into account for purposes of determining the NAV of the Trust.

The Trust's Benchmark

The Trust will use the Index as a reference to track and measure its performance compared to the price performance of the markets for the Index Constituents and to value the bitcoin and ether held by the Trust for purposes of calculating the Trust's NAV.

The Index is designed to measure the performance of a portion of the overall crypto asset market. The Index does not track the overall performance of all crypto assets generally, nor the performance of any specific crypto assets. The Index is owned and administered by Nasdaq, Inc. (“Index Provider”) and is calculated by CF Benchmarks Limited (“Calculation Agent”), which is experienced in calculating and administering crypto assets indices. The Calculation Agent publishes daily the Index Constituents, the Index Constituents' weightings, the intraday value of the Index (under the ticker NCIUS), and the daily settlement value of the Index (under the ticker NCIUSS), which is effectively the Index's closing value.^[13]

The Index is derived from a rules-based methodology (“Index Rules”), which is overseen by the Nasdaq Cryptocurrency Index Oversight Committee (“NCIOC”). The NCIOC governs the Index and is responsible for its implementation, administration, and general oversight, including assessing crypto assets for eligibility, adjustments to account for regulatory changes and periodic methodology reviews. Neither the Trust, nor the Sponsor have control over the Index Rules or the Index administration.

According to the Index Rules, crypto assets are eligible for inclusion in the Index if they satisfy the criteria set forth under the Nasdaq Crypto U.S. Index methodology, which includes being listed on a U.S.-regulated digital asset trading platform at the time of inclusion ^[14] or serving as the underlying asset for a derivative instrument listed on a U.S.-regulated derivatives platform.^[15] The Index adjusts its constituents and weightings on a quarterly basis to reflect changes in the crypto asset markets.

Pursuant to the Index Rules, to be eligible for inclusion in the Index, crypto assets must meet the following criteria on a quarterly basis:

(1) Have active tradable markets listed on at least two Core Crypto Platforms ^[16] for the entire period since the previous Index reconstitution;

(2) Be supported by at least one Core Custodian ^[17] for the entire period since the previous Index reconstitution.

( print page 80972)

(3) To be considered for entry to the Index at any Index reconstitution, an asset must have a median daily trading volume in the USD pair conducted across all Core Crypto Platforms that is no less than 0.5% of the cryptocurrency asset that has the highest median daily trading volume.

(4) Be listed (at the time of inclusion) on a U.S.-regulated digital asset trading platform or serve as the underlying asset for a derivative instrument listed on a U.S.-regulated derivatives platform.^[18]

(5) Have free-floating pricing ( i.e., not be pegged to the value of any asset).

If a crypto asset meets requirements (1) through (5), it will be considered eligible for Index inclusion.

Notwithstanding inclusion in the eligible list, the NCIOC reserves the right to further exclude any additional assets based on one or more factors, including but not limited to its risk of being deemed a security by United States securities laws along with its review of general reputational, fraud, manipulation, or security concerns connected to the asset. Assets that, in the sole discretion of the Nasdaq Crypto Index Oversight Committee, do not offer utility, do not facilitate novel use cases, or that do not exhibit technical, structural or cryptoeconomic innovation ( e.g., assets inspired by memes or internet jokes) may also be excluded.

The Index will assess any crypto assets resulting from a hard fork or an airdrop under the same criteria as established digital assets and will only include a new digital asset if it meets the eligibility criteria set forth above.

The Sponsor will not invest the Trust's assets in any other crypto assets ( i.e., other than bitcoin and ether), even if such other crypto assets are included in the Index pursuant to the Index Rules and the eligibility criteria above.^[19]

The Index Constituents will be weighted according to their relative free float market capitalizations. The free float market capitalization of an Index Constituent on any given day is defined as the product of an Index Constituent Settlement Price (as defined below) and its “Circulating Supply” ^[20] as set in the most recent reconstitution. Weights are calculated by dividing the free float market capitalization of a digital asset by the total free float market capitalization of all Index Constituents at the time of rebalancing.

The Index will be reconstituted and rebalanced quarterly, on the first Business Day in March, June, September, and December (each a “Reconstitution Date”).

The settlement price of each Index Constituent (“Index Constituent Settlement Price”) is calculated once every trading day ^[21] by applying a publicly available rules-based pricing methodology (the “Pricing Methodology”) to a diverse collection of pricing sources to provide an institutional-grade reference price for each constituent. The Pricing Methodology is designed to account for variances in price across a wide range of sources, each of which has been vetted according to criteria identified in the methodology. Specifically, the Index Constituent Settlement Price is the Time Weighted Average Price (“TWAP”) calculated across the volume weighted average prices (“VWAPs”) for each minute in the settlement price window, which is between 3:50:00 and 4:00:00 p.m. New York time, on all Core Crypto Platforms. Where there are no transactions observed in any given minute of the settlement price window, that minute is excluded from the calculation of the TWAP.

The Pricing Methodology also utilizes penalty factors to mitigate the impact of anomalous trading activity such as manipulation, illiquidity, large block trading, or operational issues that could compromise price representation. Three types of penalties are applied when three or more contributing Core Crypto Platforms contribute pricing for a constituent asset: abnormal price penalties, abnormal volatility penalties, and abnormal volume penalties. These penalties are defined as adjustment factors to the weight of information from each platform that contributes pricing information based on the deviation of a platform's price, volatility, or volume from the median across all Core Crypto Platforms. For example, if a Core Crypto Platform's price is 2.5 standard deviations away from the median price, its price penalty factor will be a 1/2.5 multiplier.

The Sponsor believes that the NCIUSS is a suitable Index for the Trust for pricing the Trust's assets and as an Index that the Trust tracks. Specifically, it would provide reliable pricing for purposes of tracking the actual performance of the crypto asset markets for bitcoin and ether. Second, it is administered by a reputable index administrator that is not affiliated with the Sponsor or Trust,^[22] which provides assurances of accountability and independence. Finally, its Pricing Methodology is designed to resist potential price manipulation from unregulated crypto markets by applying the following safeguards:

(1) Requiring that constituents be listed (at the time of inclusion) on a U.S.-regulated crypto asset trading platform or serve as the underlying asset for a derivative instrument listed on a U.S.-regulated derivatives platform ^[23]

(2) Strict eligibility criteria for the Core Crypto Platforms from which the Index data is drawn; ( print page 80973)

(3) A diverse collection of trustworthy pricing sources to provide an institutional-grade reference price for the Index Constituents; and

(4) The use of adjustment factors to mitigate against the impact of any anomalous trading activity on the Index Constituent Settlement Prices.

Custody of the Trust's Bitcoin and Ether

An investment in the Shares is backed by assets held by the Trust, including the bitcoin and ether held by the Crypto Custodians on behalf of the Trust. The Crypto Custodians must qualify as Core Custodians by the NCIOC and, thus satisfy at least the requirements set forth by the NCIOC in the NCIUSS methodology.^[24] The Trust may engage additional custodians for its bitcoin and ether and may also remove or change current Crypto Custodians, provided that there is at least one Crypto Custodian who is also a Core Custodian at all times.^[25]

The Trust's Crypto Custodians will hold and be responsible for maintaining custody of the Trust's bitcoin and ether. The Sponsor will cause the Trust to maintain ownership and control of the Trust's bitcoin in a manner consistent with good delivery requirements for spot commodity transactions.

All of the Trust's bitcoin and ether will be held in one or more accounts in the name of the Trust (each a “Custody Account” and together the “Custody Accounts”), other than the Trust's assets which are temporarily maintained in a trading account under limited circumstances (“Trading Account”), i.e., in connection with creation and redemption basket activity or sales of bitcoin and ether deducted from the Trust's holdings in payment of Trust expenses or the Sponsor's fee (or, in extraordinary circumstances, upon liquidation of the Trust).

The Trust's bitcoin, ether and cash holdings from time to time may temporarily be maintained in the Trading Account. The Sponsor intends to execute an agreement so Coinbase Inc. can serve as the Trust's “Prime Execution Agent” (“Prime Execution Agent Agreement”). In this capacity, the Prime Execution Agent will facilitate the buying and selling of bitcoin and ether by the Trust in response to cash creations and redemptions between the Trust and registered broker-dealers that are Depositary Trust Company (“DTC”) participants that enter into an authorized participant agreement with the Sponsor (“Authorized Participants”), and the sale of bitcoin and ether to pay the Sponsor's fee, any other Trust expenses not assumed by the Sponsor, to the extent applicable, and in extraordinary circumstances, in connection with the liquidation of the Trust's assets.

Creation and Redemption of Shares

The Trust issues and redeems “Baskets” ^[26] on a continuous basis. Baskets are issued or redeemed only in exchange for an amount of cash determined by the Sponsor or the Administrator on each Business Day. No Shares are issued unless the Cash Custodian has allocated to the Trust's account the corresponding amount of cash. Baskets may be created or redeemed only by Authorized Participants. Each Authorized Participant must be registered as a broker-dealer under the Exchange Act and regulated by the FINRA, and must be qualified to act as a broker or dealer in the states or other jurisdictions where the nature of its business so requires.

The Authorized Participants will deliver only cash to create Shares and will receive only cash when redeeming Shares. Further, Authorized Participants will not directly or indirectly purchase, hold, deliver, or receive bitcoin and ether as part of the creation or redemption process, or otherwise direct the Trust or a third party with respect to purchasing, holding, delivering, or receiving bitcoin and ether as part of the creation or redemption process.

The Trust will create Shares by receiving bitcoin and ether from a third party that is not the Authorized Participant, and the Trust—not the Authorized Participant—is responsible for selecting the third party to deliver the assets. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the delivery of the bitcoin and ether to the Trust or acting at the direction of the Authorized Participant with respect to the delivery of the bitcoin and ether to the Trust. The Trust will redeem Shares by delivering bitcoin and ether to a third party that is not the Authorized Participant, and the Trust—not the Authorized Participant—is responsible for selecting the third party to receive the bitcoin and ether. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the receipt of the bitcoin and ether from the Trust or acting at the direction of the Authorized Participant with respect to the receipt of the bitcoin and ether from the Trust. The third-party will be unaffiliated with the Trust and the Sponsor.

In connection with cash creations and cash redemptions, the Authorized Participants will submit orders to create or redeem Baskets ^[27] of Shares exclusively in exchange for cash. The Trust will engage in transactions to convert cash into bitcoin and ether (in association with creation orders) and bitcoin and ether into cash (in association with redemption orders). The Trust will conduct its bitcoin and ether purchase and sale transactions by choosing, in its sole discretion, either to trade directly with designated third parties (each, a “Crypto Trading Counterparty”), who are not registered broker-dealers pursuant to written agreements between each such Crypto Trading Counterparty and the Trust, or to trade through the Prime Execution Agent acting in an agency capacity with third parties pursuant to the Prime Execution Agent Agreement. Crypto Trading Counterparties settle trades with the Trust using their own accounts at the Prime Execution Agent when trading with the Trust.

For a creation of a Basket of Shares, the Authorized Participant will be required to submit the creation order by 2:00 p.m. ET, or the close of regular trading on the Exchange, whichever is earlier (the “Order Cutoff Time”). The Order Cutoff Time may be modified by the Sponsor in its sole discretion.

On the date of the Order Cutoff Time for a creation order, the Trust will enter into a transaction by choosing, in its sole discretion, to trade directly with a Crypto Trading Counterparty or the Prime Execution Agent, to buy bitcoin and ether in exchange for the cash proceeds from such creation order. The Authorized Participant is responsible for the dollar cost of the difference between the bitcoin and ether price utilized in calculating the NAV per Share on the Creation Order Date (as described below) and the price at which the Trust acquires the bitcoin and ether to the extent the price amount for buying the bitcoin and ether is higher than the price utilized in calculating the ( print page 80974) NAV. In the case the price amount for buying the bitcoin and ether is lower than the price utilized in calculating the NAV, the Authorized Participant shall keep the dollar impact of any such difference.

Creation orders will take place as follows, where “T” is the date of the creation order and each day in the sequence must be a business day in the U.S.

Creation order date (T)

Settlement date (T+1)

• Authorized Participant places a creation order. • The Transfer Agent accepts (or rejects) the creation order. • The Trust will enter into a transaction with the Crypto Trading Counterparty or the Prime Execution Agent to purchase the corresponding bitcoin and ether. • As soon as practicable after 4:00 p.m. ET, the Sponsor determines the Basket cash component, including any dollar cost difference between the bitcoin and ether price utilized in calculating NAV per Share and the price at which the Trust acquires the bitcoin and ether.

• The Authorized Participant delivers the Basket cash component to the Trust's cash account that is maintained with the Cash Custodian. • The Crypto Trading Counterparty or the Prime Execution Agent deposits the bitcoin and ether into the Trust's Trading Account related to the purchase transaction. • Once the Trust is in simultaneous possession of the Basket cash component and the bitcoin and ether, the Trust delivers the corresponding Shares to the Authorized Participant. • The Trust transfers the cash related to the purchase transaction from the Trust cash account maintained with the Cash Custodian to the Crypto Trading Counterparty or the Prime Execution Agent.

When the Trust chooses to enter into a transaction with the Prime Execution Agent, because the Trust's Trading Account may not be funded with cash on the Creation Order Date for the purchase of bitcoin and ether associated with a cash creation order, the Trust may borrow trade credits (“Trade Credits”) in the form of cash from the “Trade Credit Lender”, under a trade financing agreement (“Trade Financing Agreement”) or may require the Authorized Participant to deliver the required cash for the creation order on the Creation Order Date. The extension of Trade Credits on the Creation Order Date allows the Trust to purchase bitcoin and ether through the Prime Execution Agent on the Creation Order Date, with such bitcoin and ether being deposited in the Trust's Trading Account. On Settlement Date for a creation order, the Trust delivers Shares to the Authorized Participant in exchange for cash received from the Authorized Participant. To the extent Trade Credits were utilized, the Trust uses the cash to repay the Trade Credits borrowed from the Trade Credit Lender. On the Settlement Date for a creation order, the bitcoin and ether purchased are swept from the Trust's Trading Account to the Custody Account pursuant to a regular end-of-day sweep process.

For a redemption of a Basket of Shares, the Authorized Participant will be required to submit a redemption order by the Order Cutoff Time. On the date of the Order Cutoff Time for a redemption order, the Trust will enter into a transaction by choosing, in its sole discretion, to trade directly with a Crypto Trading Counterparty or the Prime Execution Agent, to sell bitcoin and ether in exchange for cash. The Authorized Participant will bear the difference between the bitcoin and ether price utilized in calculating the NAV per Share on the Redemption Order Date and the price realized in selling the bitcoin and ether to raise the cash needed for the cash redemption order to the extent the price realized in selling the bitcoin and ether is lower than the price utilized in the NAV. To the extent the price realized in selling the bitcoin and ether is higher than the price utilized in the NAV, the Trust will deliver the dollar impact of any such difference to the Authorized Participant.

Redemption orders will take place as follows, where “T” is the date of the redemption order and each day in the sequence must be a business day.

Redemption order date (T)

Settlement date (T+1)

• Authorized Participant places a redemption order. • The Transfer Agent accepts (or rejects) the redemption order. • The Trust instructs the Crypto Custodian to prepare to move the corresponding bitcoin and ether from the Trust's Custody Account to the Trading Account. • The Trust enters into a transaction with the Crypto Trading Counterparty or the Prime Execution Agent to sell the corresponding bitcoin and ether. • As soon as practicable after 4:00 p.m. ET, the Sponsor determines the Basket cash component, including any dollar cost difference between the bitcoin and ether price utilized in calculating NAV per Share and the price at which the Trust sells the bitcoin and ether.

• The Authorized Participant delivers the Baskets of Shares to be redeemed to the Trust. • The Crypto Trading Counterparty or the Prime Execution Agent delivers cash to the Trust's cash account that is maintained with the Cash Custodian related to the sell transaction. • Once the Trust is in simultaneous possession of the Basket of Shares and the respective Basket cash component, the Trust cancels the Shares comprising the number of Baskets redeemed by the Authorized Participant. • The Trust instructs the Crypto Custodian to transfer the corresponding bitcoin and ether agreed on the sell transaction from the Trust's Trading Account to the Crypto Trading Counterparty or Prime Execution Agent. • The Trust transfers the Basket cash component from the cash account maintained with the Cash Custodian to the Authorized Participant.