2024-27994. Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rules 4.3, 4.20, and 8.30

Bitcoin fund	Total volume (shares) (as of September 30, 2024)
Grayscale Fund	723,758,100
Grayscale Mini Fund	335,492,930
Bitwise Fund	263,965,870

Based on this trading volume,^[42] each Bitcoin Fund exceeded the requisite 100,000,000 shares necessary to qualify for the 250,000-contract position and exercise limits. By comparison, the underlying of other options with six-month trading volume less than the volumes in the table above are eligible for position and exercise limits of at least 250,000.^[43]

Second, with respect to the outstanding shares of these three Bitcoin Funds, the Exchange reviewed NYSE American's data regarding the outstanding shares of each of these Bitcoin Funds. NYSE American performed an exercise to demonstrate that if a market participant held the maximum number of contracts possible pursuant to the proposed position and exercise limits (25,000 contracts), the equivalent shares represented by the proposed position and exercise limits (2,500,000 shares) would represent the following approximate percentage of outstanding shares as of August 30, 2024:

Bitcoin Fund	Proposed position/exercise limits in equivalent shares	Outstanding shares	Percentage of outstanding shares (%)
Grayscale Fund	2,500,000	284,570,100	0.9
Grayscale Mini Fund	2,500,000	366,950,100	0.7
Bitwise Fund	2,500,000	68,690,000	3.6

As this table demonstrates, if a market participant held the maximum permissible options positions in one of the Bitcoin Fund options and exercised all of them at the same time, that market participant would control a small percentage of the outstanding shares of the underlying Bitcoin Fund. For example, as noted above, a position limit of 25,000 same side contracts effectively restricts a market participant from holding positions that could result in the receipt of no more than 2,500,000 shares of the applicable Bitcoin Fund (if that market participant exercised all its options). NYSE American used the number of shares outstanding for each Bitcoin Fund as of August 30, 2024, and calculated the approximate number of market participants that could hold the maximum of 25,000 same side positions in each Bitcoin Fund that would equate to the number of shares outstanding of that Bitcoin Fund:

Bitcoin Fund	Outstanding shares	Number of market participants with 25,000 same side positions
Grayscale Fund	284,570,100	114
Grayscale Mini Fund	366,950,100	147
Bitwise Fund	68,690,000	27

This means if 114 market participants had 25,000 same side positions in options on the Grayscale Fund, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. Similarly, this means if 147 market participants had 25,000 same side positions in options on the Grayscale Mini Fund, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. Finally, this means if 27 market participants had ( print page 94851) 25,000 same side positions in options on the Bitwise Fund, each of them would have to simultaneously exercise all of those options to create a scenario that may put the underlying security under stress. The Exchange believes it is highly unlikely for this to occur; however, even if such event did occur, the Exchange would not expect any of the Bitcoin Fund to be under stress because such an event would merely induce the creation of more shares through the trust's creation and redemption process.

NYSE American also performed an exercise to compare the size of the proposed position limit to the market capitalization of the Bitcoin market given that the issuer of each of these three Bitcoin Funds may create and redeem shares that represent an interest in Bitcoin. NYSE American took the global supply of Bitcoin, which was 19,747,066, and the price of one Bitcoin, which was approximately $59,108.23, as of August 30, 2024, which equates to a market capitalization of approximately $1.167 trillion.^[44] Consider the proposed position and exercise limit of 25,000 option contracts for each Bitcoin Fund option. A position and exercise limit of 25,000 same side contracts effectively restricts a market participant from holding positions that could result in the receipt of no more than 2,500,000 shares of the Grayscale Fund, the Grayscale Mini Fund, or the Bitwise Fund, as applicable (if that market participant exercised all its options). NYSE American considered the share price of each Bitcoin Fund on August 30, 2024 and calculated the value of 2,500,000 shares of the Bitcoin Fund at that price, and the approximate percentage of that value of the size of the Bitcoin market:

Bitcoin Fund	Share price ($)	Value of 2,500,000 shares	Percentage of bitcoin market (%)
Grayscale Fund	46.75	116,875,000	0.010
Grayscale Mini Fund	5.20	13,000,000	0.001
Bitwise Fund	31.95	79,875,000	0.007

Therefore, if a market participant with the maximum 25,000 same side contracts in options on the Grayscale Fund, the Grayscale Mini Fund, or the Bitwise Fund exercised all positions at one time, such an event would have no practical impact on the Bitcoin market.

The Exchange also reviewed NYSE American's data regarding the market capitalization of each of these three Bitcoin Funds relative to the market capitalization of the entire Bitcoin market, as of August 30, 2024: ^[45]

	Bitcoin/shares outstanding	Market value ($)	% of total bitcoin market
Total Bitcoin Market	19,747,066	1,167,214,096,788	100
Grayscale Fund	284,570,100	13,443,091,524	1.15
Grayscale Mini Fund	366,950,100	1,930,157,526	0.17
Bitwise Fund	68,690,000	2,221,640,670	0.19

As this data gathered by NYSE American demonstrates, none of these three Bitcoin Funds represent more than 1.2% of the global supply of Bitcoin (19,747,066). Based on the $46.75 price of a Grayscale Fund share on August 30, 2024, a market participant could have redeemed one Bitcoin for approximately 1,264 Grayscale Fund shares. Another 24,967,146,455 Grayscale Fund shares could be created before the supply of Bitcoin was exhausted. As a result, 9,987 market participants would have to simultaneously exercise 25,000 same side positions in Grayscale Fund options receive shares of the Grayscale Fund holding the entire global supply of Bitcoin. Similarly, based on the $5.20 price of a Grayscale Mini Fund share on August 30, 2024, a market participant could have redeemed one Bitcoin for approximately 11,367 Grayscale Mini Fund shares. Another 224,464,249,382 Grayscale Mini Fund shares could be created before the supply of Bitcoin was exhausted. As a result, 89,786 market participants would have to simultaneously exercise 25,000 same side positions in Grayscale Mini Fund options to receive shares of Grayscale Mini Fund holding the entire global supply of Bitcoin. Similarly, based on the $31.95 price of a Bitwise Fund share on August 30, 2024, a market participant could have redeemed one Bitcoin for approximately 1,850 Bitwise Fund shares. Another 36,532,522,591 Bitwise Fund shares could be created before the supply of Bitcoin was exhausted. As a result, 14,613 market participants would have to simultaneously exercise 25,000 same side positions in Bitwise Fund options to receive shares of Bitwise Fund holding the entire global supply of Bitcoin.

As ISE did with respect to the iShares Fund, NYSE American compared the proposed position limits to the position limit of CME Bitcoin futures, which as noted above is 2,000 futures. On August 28, 2024, CME Aug 24 Bitcoin Futures settled at $58,950. A position of 2,000 CME Bitcoin futures, therefore, would have a notional value of $589,500,000. The following table shows the share price of each Bitcoin Fund on August 28, 2024, and the approximate number of option contracts that equates to that notional value:

Bitcoin Fund	Share price ($)	Number of option contracts
Grayscale Fund	46.94	125,585
Grayscale Mini Fund	5.23	1,127,151
Bitwise Fund	32.08	183,759