June 2,
2022
|
Mr. John
Dana Brown
Divisions
of Corporate Finance
U.S.
Securities and Exchange Commission
100 F
Street, NE
Washington,
DC 2054905401
|
Re:
Teucrium Commodity Trust
Amended
Registration Statement on Form S-1
File
No. 333-256339
Dear
Mr. Brown:
On
behalf of the sponsor, Teucrium Trading LLC (the
“Sponsor”), and the Hashdex Bitcoin Futures Fund (the
“Fund”), a series of the Teucrium Commodity Trust (the
“Trust” or the “Registrant”), we are
responding to your comments dated May 20, 2022 in regard to
the Fund’s amended registration statement on Form S-1 filed
on April 18, 2022 (the “Registration Statement”).
All capitalized terms not defined herein shall have the meaning
assigned to them in the Registration Statement.
Please
note that the risk factors have been reorganized as requested by
the Staff, so the page number references in the Staff's comments
may no longer apply. Accordingly, we have included new page numbers
in our responses corresponding to newly revised disclosure. For
convenience, each of the Staff’s comments are restated below,
with the response following.
Amended Form S-1 filed April 18, 2022
General
1. Comment: Please
disclose all omitted information as soon as it has been determined.
By way of example, we note that you omit financial statements, the
name of the auditor, identities of the initial Authorized Purchaser
and Marketing Agents, quantitative disclosure in the Breakeven
Analysis, and quantitative disclosure in Contractual Fees and
Compensation Arrangements with the Sponsor and Third-Party Service
Providers.
Response: In
addition to the pre-effective amendment filed herewith, the Fund
expects to file one more pre-effective amendment to respond to any
Staff follow-up comments and to provide any remaining required
information and exhibits.
2. Comment: Please
revise to explain what “Hashdex” refers to in the name
of the Fund.
Response: The
Registrant has added a sentence to the Cover Page to the effect
that Hashdex Asset Management Ltd. will serve as the Fund's Digital
Asset Adviser and will assist the Sponsor and Marketing Agents with
marketing, research and investment analysis related
services.
3. Comment: Refer
to page 4 of Exchange Act Release No. 34-94620, Order
Granting Approval of a Proposed Rule Change, as Modified by
Amendment No. 2. Please explain how your disclosure on
page 17 referencing “other permitted exchange listed
bitcoin interests” in which you could invest and on
page 35 about “other exchange listed bitcoin interests
based on the spot price of bitcoin” that you may trade in
from time to time are consistent with the representation that the
Fund will only invest in BTC Contracts and MBT Contracts (Bitcoin
Futures Contracts) and in cash and cash equivalents. Please also
explain how the first risk factor on page 24 and other
disclosure relating to leverage is consistent with the
representation that the Fund will not become
leveraged.
Response: The
referenced representation in Exchange Act Release No. 34-94620
(the “19b-4”), that the Fund will only invest in BTC
Contracts and MBT Contracts, is not inconsistent with the
referenced prospectus disclosure. The Staff correctly notes that
the prospectus does disclose (with disclosure having been recently
reviewed closely by the Staff) that the Fund is permitted to change
its investment objective and strategies under certain circumstances
and therefore could invest in other bitcoin interests. However, as
the prospectus also discloses, the Fund could invest in other
bitcoin interests only consistent with applicable regulatory
requirements, including filing for an amended 19b-4.
That
being said, the Registrant recognizes that the referenced
disclosure is not intended to address this type of situation and
has therefore revised the referenced disclosure to remove the
reference to other exchange listed bitcoin interests.
Accordingly, the references to “other permitted exchange
listed bitcoin” has been deleted from these risk
factors.
With respect to the reference to “leveraged,” the
referenced risk factor is factually accurate. It is not
inconsistent with the 19b-4, however, because the Fund would likely
need to amend its prospectus and obtain amended 19b-4 relief before
it could change its investment objectives to be leveraged. The
Registrant has revised references in the prospectus suggesting that
the Fund could become leveraged.
4. Comment: Please
add a separate subsection disclosing information about the
Benchmark. Your revised disclosure should address the
following:
●
who created the
Benchmark, where is it published, and whether it includes only BTC
Contracts or also MBT contracts;
●
when the Benchmark
rolls from first to expire to second to expire
contracts;
●
what you mean by
“roughly constant expiration profile” on page 5
and how this reconciles with cover page disclosure that the
benchmark is the average of the closing settlement prices for the
first and second to expire contracts;
●
what first to
expire and second to expire means; and
●
provide an
illustrative example of what the benchmark holdings would be on a
particular date.
Please
also clarify whether you intend to always be 50/50 between the
first and second month contracts (which only requires rolling once
a month) or if you contemplate a weighted average expiration date
of one month (which requires rolling on a more frequent or daily
basis).
Response: The
Registrant has added new disclosure to “The Fund’s
Investment Strategies” (page 3).
"Teucrium created
and maintains the Benchmark and ICE Data Indices will publish the
Benchmark. The Benchmark will only include BTC
Contracts.
"The
Fund's futures contract positions will be rolled on a monthly basis
by closing out the first to expire contracts prior to settlement
and then entering into the third to expire contracts which will
become the new second to expire - maintaining the 50% equal weight,
first to expire and second to expire. Fund rolling will take place
on the market business day preceding the last trading day of the
first to expire contract. The last trade day of the first to expire
contact is currently defined as the last business Friday of the
month."
The
Sponsor will delete the reference to “roughly constant
expiration profile."
5. Comment: To
the extent you are aware of any brokerages that do not permit
trading in securities linked to the price of bitcoin, please update
your plan of distribution disclosure accordingly.
Response: While
the Registrant is not aware of any brokerages that do not permit
trading in securities linked to the price of bitcoin, there might
be some. The Registrant believes that what is material to investors
is that there is a risk associated with this possibility.
Accordingly, the Registrant has added the following to the Plan of
Distribution section of the prospectus on page 34. “Investors
are cautioned that they might not be able to buy or sell shares of
the Fund through their current brokerages. Moreover, even if an
investor were able to purchase shares through their current
brokerage, that brokerage might decide to stop trading in
bitcoin-linked securities and the investor would potentially face
restrictions on when and or how they could trade their existing
bitcoin positions."
6. Comment: Please
disclose in the summary and add a risk factor describing the risks
of fraud and manipulation in the price of bitcoin and how these
risks could impact purchasers of Fund shares.
Response: The
Registrant has added the requested disclosure to the summary on
page 6 and added the following risk factor on
page 12:
"Market fraud and/or manipulation and other fraudulent trading
practices such as the intentional dissemination of false or
misleading information (e.g., false rumors) can, among other
things, lead to a disruption of the orderly functioning of markets,
significant market volatility, and cause the value of bitcoin
futures to fluctuate quickly and without warning. Depending on the
timing of an investor’s purchases and sales of the
Fund’s shares, these pricing anomalies could cause the
investor to incur losses."
7. Comment: Please
file the agreements with your FCMs as exhibits to the registration
statement.
Response: The
Registrant respectfully notes that (i) the information in the
FCM’s agreements that the Registrant believes is material to
investors has been disclosed in the prospectus (which disclosure
was developed in close coordination with the Staff), and
(ii) the Registrant does not believe the FCM agreements are
otherwise material to investors. We note that the commissions paid
to FCMs are already disclosed in the prospectus on
page 32.
8. Comment: Please
provide us with an update on the status of any review being
conducted by the NFA and provide us with copies of any comments
issued and your responses to those comments.
Response:
The NFA has
completed its initial review and the Fund has reflected those
comments in this filing.
9. Comment: To
the extent you intend to use a fact sheet, please provide us with a
copy for our review.
Response: The
Registrant intends to use a fact sheet, however, It is currently in
the drafting stage. The fact sheet will be provided in the next
pre-effective amendment.
10. Comment: Please
tell us how the Fund would value your bitcoin futures holdings in
the event the CME halted trading in bitcoin futures contracts
because of price limits or otherwise.
Response: When
a bitcoin futures contract has closed at its price fluctuation
limit, that limit price will be the daily settlement price that the
CME publishes. The Fund will use the published settlement price to
price its shares on that day.
Cover Page
11. Comment: Please
identify the initial Authorized Purchaser as an underwriter here
and in the last paragraph on page 40.
Response: The
Fund’s prospectus includes standard disclosure on
page 34 that has long been required by the Staff to the effect
that some of the activities of Authorized Purchasers, other broker-dealers and other
persons are cautioned that some of their activities may result in
their being deemed participants in a distribution in a manner that
would render them statutory underwriters. Because this status
question is a facts and circumstances test, the Registrant believes
it would not be accurate or appropriate to identify the initial
authorized purchaser as an underwriter.
12. Comment: Please
state explicitly in the first paragraph that the fund will not
hold, purchase, or otherwise own any bitcoin, and that purchasing
shares of the fund is not a direct investment in
bitcoin.
Response: The
following disclosure has been added to the first paragraph of the
cover page:
“Under its
current investment objective (which may be changed under certain
circumstances, see “The Fund’s Investment
Strategies” on page 3), the Fund will not hold,
purchase, or otherwise own any bitcoin. Purchasing shares of the
Fund is not a direct investment in bitcoin.” The Registrants
note that the cross-referenced disclosure conditions any change in
investment objective or strategies on, among other things,
satisfaction of “any requirement to amend applicable listing
rules of the NYSE.”
13. Comment: Please
disclose that because the fund will hold Bitcoin Futures Contracts
which are linked to the price of bitcoin, an investment in the fund
may not be suitable for all investors and may be riskier than other
exchange-traded products that do not hold financial instruments
related to bitcoin.
Response: A
risk factor currently in the prospectus on page 11 states as
follows: “An investment in the
Fund is subject to the risks of an investment in futures contracts,
which are complex instruments that are often subject to a high
degree of price variability. Accordingly, an investment in the Fund
should be monitored periodically and may not be suitable for all
investors.” The Registrant will revise this risk
factor as follows and will also disclose this risk on the Cover
Page of the prospectus.
"An
investment in the Fund is subject to the risks of an investment in
futures contracts, which are complex instruments that are often
subject to a high degree of price variability. Because the price of
Bitcoin Futures Contracts is linked to the price of bitcoin, an
investment in the Fund may be riskier than other exchange-traded
products that do not hold financial instruments related to bitcoin
and may not be suitable for all investors."
14. Comment: Please
discuss the potential for movement in the price of the shares
between the times of offer and sale given the price volatility of
Bitcoin Futures Contracts.
Response: The
Fund will add the following disclosure to the cover
page:
“In
addition, Bitcoin futures contracts may experience pronounced and
swift price swings. Accordingly, the price of the Fund’s
shares may move between the time an investor places an order to
sell with its broker-dealer and the time of the actual
sale.”
15. Comment: Refer
to the sixth paragraph. Please explicitly state that shareholders
will not be afforded the protections associated with ownership of
shares in a registered investment company and include a
cross-reference to the second risk factor on
page 14.
Response: The
referenced sentence that currently states that “[t]he Fund is
not a mutual fund registered under the Investment Company Acy of
1940 and is not subject to regulation” will be replaced with
“The Fund is not an investment company registered under the
Investment Company Act of 1940, and Fund shareholders will not be
afforded the protections associated with ownership of shares in a
registered investment company. See “The Fund is not a
registered investment company, so you do not have the protections
of the Investment Company Act of 1940” on
page 16.
The Fund’s Investment Objective, page 4
16. Comment: Please
state that the Benchmark value will be disseminated once every 15
seconds during the core trading session.
Response: The
prospectus currently states in "Net Asset Value" on page 8 that ICE
Data Services, LLC calculates and disseminates an approximate net
asset value every 15 seconds throughout each day that the Fund's
Shares are traded on the NYSE Arca for as long as the CME's main
pricing mechanism is open. This disclosure will be added to the
referenced section of the prospectus captioned "The Fund's
Investment Objective" as well. In the Sponsor’s experience,
approximate net asset value is used by many market participants
rather than the value of the Benchmark. This permits market
participants to evaluate the Fund’s actual approximate net
asset value rather than a proxy (i.e., the Benchmark) to determine
arbitrage opportunities.
What Are the Risk Factors Involved with an Investment in the Fund?,
page 11
17. Comment: Please
organize the risk factors into subsections, including separate
subsections for risks related to bitcoin and risks related to
futures. Also, break out the first risk factor into separate risk
factors addressing each discrete material risk
presented.
Response: The
risk factors have been organized into subsections, including
separate subsections for risks relating to bitcoin and risks
relating to futures. The first risk factor has been broken into
separate risk factors addressing each discrete material risk
presented, and given that some of disclosure in the first risk
factor is simply factual, that disclosure has been moved to "The
Bitcoin Industry” section of the prospectus on page 29.
In addition, a new section of risk factors captioned
“Risks Associated with Investing in Bitcoin” has been
added.
18. Comment: Please
add a risk factor describing risks that your timing in reaching the
market could have a detrimental effect on the scale of the fund. We
note that there are a number bitcoin futures-based ETFs and that
subsequent funds have successively lower net assets.
Response: The
Registrant notes that the following risk factor was included in the
last pre-effective amendment filed:
“The Fund is Newly Formed and May Not Be Successful in
Implementing its Investment Objective or Attracting Sufficient
Assets.
“The
Fund is newly formed, and the Fund faces competition from other
funds with exposure to cryptocurrency. Accordingly, investors in
the Fund bear the risk that the Fund may not be successful in
implementing its investment objective or may fail to attract
sufficient assets, which could result in the Fund being liquidated
at a time that may not be favorable to all shareholders or which
could have negative tax consequences.”
The
Registrant has revised the current disclosure as
follows:
“The Fund is newly formed and may not be successful in
implementing its investment objective or attracting sufficient
assets.
“The
Fund is a new fund, with a limited or no operating history and a
small asset base. There can be no assurance that the Fund will grow
to or maintain a viable size. Due to the Fund’s small asset
base, the Fund’s portfolio transaction costs and any costs
that are not paid by the Sponsor pursuant to the Management Fee,
may be relatively higher than those of a fund with a larger asset
base. To the extent that the Fund does not grow to or maintain a
viable size, it may be liquidated, and the expenses, timing and tax
consequences of such liquidation may not be favorable to some
shareholders.”
The
Registrant believes this risk factor as revised is consistent with
industry practice and that the Registrant's specific timing is not
unique.
19. Comment: Please
also add separate risk factors addressing the following discrete
risks of the bitcoin futures market:
●
the risks related
capacity constraints in the bitcoin futures market given existing
volumes and open interest positions in the market that would limit
the size of the fund’s exposure to bitcoin
futures;
●
the risks if the
market for bitcoin futures-based ETFs reached saturation;
and
●
the risks to the
bitcoin futures market if you and other funds with similar
investment strategies try to exit positions at the same
time.
Response: The
Fund has added the following disclosure to the prospectus at the
pages noted:
●
The risks related
capacity constraints in the bitcoin futures market given existing
volumes and open interest positions in the market that would limit
the size of the fund’s exposure to bitcoin
futures:
Certain of the Fund's Investments Could Be
Illiquid, Which Could Cause Large Losses to Investors at Any Time
or from Time to Time [page 14]
"If the
Fund's ability to obtain exposure to bitcoin futures contracts in
accordance with its investment objective is disrupted for any
reason including, because of limited liquidity in the bitcoin
futures market, a disruption to the bitcoin futures market, or as a
result of margin requirements or position limits imposed by the
Fund’s futures commission merchants (“FCMs”), the
CME, or the CFTC, the Fund may not be able to achieve its
investment objective and may experience significant losses. Any
disruption in the Fund’s ability to obtain exposure to
bitcoin futures contracts will cause the Fund’s performance
to deviate from the performance of bitcoin futures. In addition,
the Fund might grow to a size where a lack of liquidity in the
futures market meant that the Fund could not sell enough futures
contract to honor redemption requests. The Fund does not have a
line of credit, so the Fund might be required to temporarily
suspend redemptions until it could liquidate more of its futures
positions. For further information regarding the impact if
suspending redemptions, see “Suspension or Rejection of
Redemption” on page 37.
"A
market disruption, such as a government taking regulatory or other
actions that disrupt the market in bitcoin, can also make it
difficult to liquidate a position. Unexpected market illiquidity
may cause major losses to investors at any time or from time to
time. In addition, the Fund does not intend at this time to
establish a credit facility, which would provide an additional
source of liquidity, but instead will rely only on the cash and
cash equivalents that it holds to meet its liquidity needs. The
anticipated value of the positions in Benchmark Component Futures
Contracts that the Sponsor will acquire or enter into for the Fund
increases the risk of illiquidity. Because Benchmark Component
Futures Contracts may be illiquid, the Fund’s holdings may be
more difficult to liquidate at favorable prices in periods of
illiquid markets and losses may be incurred during the period in
which positions are being liquidated.”
●
The risks if the
market for bitcoin futures-based ETFs reached
saturation:
The Market for Bitcoin Futures-Based ETFs
May Reach Saturation [Page 20]
“The
market for bitcoin futures-based ETFs like the Fund may reach a
point where there is little or no additional investor demand. If
this happens, there can be no assurance that the Fund will grow to
or maintain a viable size. Due to the Fund’s small asset
base, certain of the Fund’s expenses and its portfolio
transaction costs may be higher than those of a fund with a larger
asset base. To the extent that the Fund does not grow to or
maintain a viable size, it may be liquidated, and the expenses,
timing and tax consequences of such liquidation may not be
favorable to some shareholders.
●
The risks to the
bitcoin futures market if you and other funds with similar
investment strategies try to exit positions at the same
time:
“The Fund and Other Funds with Similar Investment Strategies
May Try To Exit Positions at the Same Time [page 14]
"If the
Fund and other funds with similar investment strategies try to exit
their Bitcoin Futures Contract positions at the same time, such a
mass exit could have detrimental effect on price and liquidity and
you could incur losses in your investment in shares of the
Fund."
20. Comment: Please
add risk factors addressing the following discrete risks relating
to your portfolio:
●
to the extent
material, the risks if MBT performs differently than BTC in your
portfolio and
●
the risk of
potential differences between returns based on the price of bitcoin
and an investment in your fund, including, for example, divergences
between the spot price of bitcoin and the price of Bitcoin Futures
Contracts, the additional costs related to futures investing, and
other fund expenses.
Response: With
respect to the first requested risk factor, the Registrant does not
believe that there are risks of MBT performing differently than BTC
in the Fund’s portfolio, because MBT settles to the same
price as BTC.
With
respect to second requested risk factor, the Registrant believes
those risks are disclosed in the section of the prospectus now
captioned “Correlation Risk” on page 12.
21. Comment: Please
add risk factors addressing the following discrete risks affecting
the price of bitcoin and in turn the price of bitcoin
futures:
●
the lack of
regulation in the bitcoin market;
●
environmental risks
from bitcoin mining;
●
use of bitcoin in
illicit transactions;
●
hacking risks from
theft of private keys;
●
lack of adoption
and ability to use bitcoin to purchase goods;
●
risk of price
volatility from other parts of the crypto asset market, such as the
recent UST depegging;
●
the risks of a
“51% attack” on bitcoin and how this would impact your
investors; and
●
the risks presented
by the existence of bitcoin “whales” and the
concentration in bitcoin ownership.
Response: The
Registrant has added risk factors addressing the following discrete
risks affecting the price of bitcoin and in turn the of bitcoin
futures:
●
The lack of regulation in the bitcoin market
– The Registrant has included a new risk factor
captioned “Lack of Regulation of the Bitcoin Market”
under the section of the risk factors captioned
“Regulatory Risk.” The new risk factor is as
follows:
"Lack of Regulation of the Bitcoin Market [page 15]
"Bitcoin,
the Bitcoin Network and the bitcoin trading venues are relatively
new and, in most cases, largely unregulated. As a result of this
lack of regulation, individuals, or groups may engage in insider
trading, fraud or market manipulation with respect to bitcoin. Such
manipulation could cause investors in bitcoin to lose money,
possibly the entire value of their investments. Over the past
several years, a number of bitcoin trading venues have been closed
due to fraud, failure, or security breaches. The nature of the
assets held at bitcoin trading venues make them appealing targets
for hackers and a number of bitcoin trading venues have been
victims of cybercrimes and other fraudulent activity. These
activities have caused significant, in some cases total, losses for
bitcoin investors. Investors in bitcoin may have little or no
recourse should such theft, fraud or manipulation occur. There is
no central registry showing which individuals or entities own
bitcoin or the quantity of bitcoin that is owned by any particular
person or entity. There are no regulations in place that would
prevent a large holder of bitcoin or a group of holders from
selling their bitcoins, which could depress the price of bitcoin,
or otherwise attempting to manipulate the price of bitcoin or the
Bitcoin Network. Events that reduce user confidence in bitcoin, the
Bitcoin Network and the fairness of bitcoin trading venues could
have a negative impact on the price of bitcoin and the value of an
investment in the Fund."
●
Environmental risks from bitcoin mining
– The Registrant has included a new risk factor
captioned "Environmental risks from bitcoin mining” in the
“Risks Associated with Investing in Bitcoin” section of
the risk factors:
“Environmental risks from bitcoin mining [page
11]
"Bitcoin
mining currently requires computing hardware that consumes large
amounts of electricity. By way of electrical power generation, many
bitcoin miners rely on fossil fuels to power their operations.
Public perception of the impact of bitcoin mining on climate change
may reduce demand for bitcoin and increase the likelihood of
regulation that limits bitcoin mining or restricts energy usage by
bitcoin miners. Such events could have an impact on the price of
bitcoin, bitcoin futures, and the performance of the
Fund."
●
Use of bitcoin in illicit transactions
– The Registrant has included a new risk factor captioned
“Risk of Illicit Activities” in the “Regulatory
Risk” section of the risk factors:
"Risk of Illicit Activities [page 15]
"As
bitcoins have grown in both popularity and market size, the U.S.
Congress and a number of U.S. federal and state agencies (including
the Financial Crimes Enforcement Network of the U.S. Department of
the Treasury (“FinCEN”), SEC, CFTC, the Financial
Industry Regulatory Authority, Inc. (“FINRA”), the
Consumer Financial Protection Bureau (“CFPB”), the
Department of Justice, the Department of Homeland Security, the
Federal Bureau of Investigation, the IRS, and state financial
institution regulators) have been examining the Bitcoin
Network, bitcoin users and the Bitcoin Exchange Market, with
particular focus on the extent to which bitcoins can be used to
launder the proceeds of illegal activities or fund criminal or
terrorist enterprises and the safety and soundness of exchanges or
other service providers that hold bitcoins for users. The
imposition of stricter governmental regulation of the bitcoin
market may adversely impact the activities of the Fund, for
example, by reducing the liquidity on the bitcoin
markets."
●
Hacking risks from theft of private
keys – The Registrant has included a new risk factor
captioned “Hacking Risk of Theft of Private Keys” in
the “Operating Risk” section of the risk
factors:
“Hacking Risk of Theft of Private Keys [page 11]
“Due
to the nature of private keys, bitcoin transactions are irrevocable
and stolen or incorrectly transferred bitcoin may be irretrievable,
and as a result, any incorrectly executed bitcoin transactions
could adversely affect the price and liquidity of Bitcoin, which
may indirectly affect the price and liquidity of the Bitcoin
Futures Contracts.”
●
Lack of adoption and ability to use bitcoin to
purchase goods – The Registrant has included a new
risk factor captioned “Lack of Adoption and Ability of
Bitcoin to Purchase Goods” in the section of the risk
factors captioned “Risks of Investing in
Bitcoin.”
Limited Adoption and Ability to Use Bitcoin to Purchase Goods [page
11]
“Currently,
there is relatively limited use of bitcoin in the retail and
commercial marketplace in comparison to relatively extensive use as
a store of value, thus contributing to price volatility that could
adversely affect the Fund’s Bitcoin Futures Contracts.
Bitcoin is not currently a form of legal tender in the United
States and has only recently become selectively accepted as a means
of payment for goods and services by some retail and commercial
outlets, and the use of bitcoin by consumers to pay such retail and
commercial outlets remains limited. Banks and other established
financial institutions may refuse to process funds for bitcoin
transactions; process wire transfers to or from bitcoin trading
venues, bitcoin-related companies or service providers; or maintain
accounts for persons or entities transacting in bitcoin or
providing bitcoin-related services. In addition, some taxing
jurisdictions, including the U.S., treat the use of bitcoin as a
medium of exchange for goods and services to be a taxable sale of
bitcoin, which could discourage the use of bitcoin as a medium of
exchange, especially for a holder of bitcoin that has appreciated
in value.”
●
Risk of price volatility from other parts of
the crypto asset market, such as the recent UST depegging
– The Registrant has included a new risk factor captioned
“Risks to Bitcoin from Other Parts of the Crypto
Market.”
“Risks to Bitcoin from Other parts of the Cryptocurrency
Market [page 11]
“The
price of bitcoin and the bitcoin market generally may be adversely
impacted by developments in other parts of the cryptocurrency
market. The acceptance of bitcoin and cryptocurrency generally
depends on a number of factors, including adverse developments in
the cryptocurrency market that could impact investor confidence.
For example, “stablecoins” have been developed to
enhance the value of cryptocurrency to be used like fiat currency
in transactions in goods and services. Adverse developments such as
the recent “depegging” of the TerraUSD stablecoin may
undermine confidence in the cryptocurrency markets generally and
cause decreases in the price of cryptocurrencies such as
bitcoin.”
The risks of a “51% attack” on
bitcoin and how this would impact your investors; and the risks
presented by the existence of bitcoin “whales” and the
concentration in bitcoin ownership — A corresponding
risk factor has been included in the new risk factor captioned
“Networked Systems Are
Vulnerable to Attacks.”
“Networked Systems Are Vulnerable to Attacks [page
10]
All
networked systems are vulnerable to various kinds of attacks. As
with any computer network, the Bitcoin network contains certain
flaws. For example, the Bitcoin network is currently vulnerable to
a “51% attack” where, if a mining pool were to gain
control of more than 50% of the “hash” rate, or the
amount of computing and process power being contributed to the
network through mining, a malicious actor would be able to gain
full control of the network and the ability to manipulate the
blockchain. A significant portion of bitcoin is held by a small
number of holders sometimes referred to as “whales.”
These holders have the ability to manipulate the price of
bitcoin.”
22. Comment: Please
specify the index you are referring to in the first sentence of
this risk factor.
Response: The
reference to an index was inadvertent. The Registrant has deleted
the first clause of the referenced sentence, which now begins
with “The correlation between changes ….”
[page
12]
Certain of the Fund’s investments could be illiquid,
page 13
23. Comment: Please
expand this risk factor to discuss liquidity risks because of
capacity constraints resulting from CME position limits and other
market factors. Please also discuss how the Fund will manage
liquidity pressures in the event the Fund’s size requires
greater liquidity than available in the market to satisfy
redemptions.
Response: The
Registrant has revised the referenced risk factor as
follows:
“Certain
of the Fund’s Investments Could Be Illiquid, Which Could
Cause Large Losses to Investors at any Time or from Time to Time
[page 14]
"If the
Fund's ability to obtain exposure to Bitcoin Futures Contracts in
accordance with its investment objective is disrupted for any
reason including because of limited liquidity in the bitcoin
futures market, a disruption to the bitcoin futures market, or as a
result of margin requirements or position limits imposed by the
Fund's futures commission merchants, the CME, or the CFTC, the Fund
may not be able to achieve its investment objective and may
experience significant losses. Any disruption in the Fund's ability
to obtain exposure to Bitcoin Futures Contracts will cause the
Fund's performance to deviate from the performance of Bitcoin
Futures Contracts. In addition, the Fund might grow to a size where
a lack of liquidity in the futures market meant that the Fund could
not sell enough futures contract to honor redemption requests. or
further information regarding the impact if suspending redemptions,
see “Suspension or Rejection of Redemption” on
page 37."
Changes in the Fund’s NAV may not correlate well with changes
in the price of the Benchmark, page 13
24. Comment: Please
explain the references to exposure to the corn market in the fourth
paragraph of this risk factor.
Response: The
reference to the word “corn” was inadvertent;
“corn” has been changed to “bitcoin.”
[page
12]
25. Comment: We
note your statement that one of the FCMs has imposed a financial
ceiling on initial margin that could change. Please disclose the
current amount of the financial ceiling, and explain the impact
that it may have on your performance. In addition, clarify whether
your other FCM has imposed a financial ceiling on initial
margin.
Response: The
Fund intends to have accounts at StoneX Financial Inc. and Philips
Capital Inc. Neither of these FCMs have imposed limits on the Fund,
but reserve the right to do so in the future. The Fund has updated
this language in the prospectus.
26. Comment: Specifically
address here the impact that the volatility of Bitcoin Futures
Contracts could have on the effectiveness of the arbitrage
mechanism. In addition, disclose how these arbitrage concerns, to
the extent that they are present, could impact your ability to
ensure adequate participation by Authorized
Participants.
Response: The
Registrant has included the following paragraph at the end of the
referenced risk factor [page
13]:
"There
may be significant volatility in the market for Bitcoin Futures
Contracts. This volatility, in turn, may make it more difficult for
Authorized Participants and other market participants to be able to
identify a reliable price for Bitcoin Futures Contracts. Without
reliable prices, Authorized Participants and other market
participants may reduce their role in the market arbitrage process
or “step away” from these activities. This, in turn,
might inhibit the effectiveness of the arbitrage process in
maintaining the relationship between the underlying value of the
Fund’s Bitcoin Futures Contracts and the Fund’s market
price. This reduced effectiveness could result in Fund shares
trading at a price which differs materially from NAV and also in
greater than normal intraday bid/ask spreads for Fund
shares.
The price relationship between the Benchmark Component Futures
Contracts, page 15
27. Comment: Please
place this risk factor in context by disclosing the periods since
inception when the bitcoin futures market has been either in
backwardation or contango. In particular, please disclose the
periods and extent to which the market has been in contango and
quantify the extent to which those would have impacted a return on
investment. Please also discuss and quantify the contango risk in
your summary.
Response: The
Fund has included additional disclosure to place this risk factor
into context as follows:
"From
1/1/2019 to 3/31/2022, the 1st to 2nd month bitcoin
futures contracts at the point of expiration/roll were in a state
of contango 92% of the time. During the same time period, the
1st to
3rd month
bitcoin futures contracts were also in a state of contango 92% of
the time. Rolling 100% of a portfolio on a monthly basis from
1st to
2nd month
bitcoin futures contracts resulted in an average annual roll yield
of 8.16% while rolling 50% of the portfolio on a monthly basis from
1st to
3rd month
bitcoin futures contacts resulted in an average annual roll yield
of 3.47%."
Position limits, accountability levels and dynamic price
fluctuation limits, page 17
28. Comment: Please
place this risk factor in context by disclosing any specific
instances when Bitcoin Futures Contracts have reached the dynamic
price fluctuation limit. Please also revise the third paragraph on
page 6 to disclose the material aspects of dynamic price
fluctuation limit functionality.
Response: The
following disclosure has been added to the prospectus (page
13):
"Price
fluctuation limits may contribute to a lack of liquidity and have a
negative impact on Fund performance. During periods of market
illiquidity, including periods of market disruption and volatility,
it may be difficult or impossible for the Fund to buy or sell
futures at desired prices or at all.
“Prior
to introducing the current Dynamic Circuit Breaker (DCB)
functionality in March 2019, there were 116 circuit breaker events
on the CME Bitcoin futures contracts which launched on December 18,
2017. Since the DCB deployment, there have been 89 events and one
hard limit move (30%) on May 19, 2021. The circuit breaker
methodology in place prior to March 2019, triggered at 7%, 13% and
20% (up/down). The 7% and 13% resulted in two-minute halts and the
20% did not trigger a halt, but market participants could not trade
beyond the limit price.”
The NYSE Arca may halt trading in the Shares,
page 23
29. Comment: Please
briefly describe the reasons why NYSE Arca may determine that
trading in the Shares is inadvisable, including because sufficient
trading is not occurring in BTC or MBT Contracts. Additionally,
discuss the pause in CME bitcoin futures trading that occurred on
May 19, 2021.
Response: The
Registrant has included the risk factors as follows:
The NYSE Arca may halt trading in the Shares, which would adversely
impact your ability to sell Shares [page 19]
“Trading in Shares of the Fund may be halted by NYSE Arca due
to market conditions or, in light of NYSE Arca rules and
procedures, for reasons that, in view of the NYSE Arca, make
trading in Shares inadvisable, such as when there may be
significant news directly related to the Fund that, in NYSE
Arca’s view or per existing NYSE Arca rules, requires a
trading halt, such as when the Sponsor announces news relating to
changes/disruptions in the Fund’s create/redeem process
during market trading hours. In addition, trading is subject to
trading halts caused by extraordinary market volatility pursuant to
“circuit breaker” rules that require trading to be
halted for a specified period based on a specified market decline.
There can be no assurance that the requirements necessary to
maintain the listing of the Shares will continue to be met or will
remain unchanged. The Fund will be terminated if its Shares are
delisted.
A Pause in Bitcoin Futures Contracts May lead To Gaps Between
Prices in Spot and Futures Markets [page 19]
"On May
19, 2021 the CME Group temporarily paused trading of bitcoin
futures after the bitcoin futures market opened to a large price
gap between the derivatives and the underlying crypto asset that
triggered CME circuit breakers. Due to the misaligned trading
periods between spot and futures markets, such gaps, which can be
positive or negative, have the potential to frequently exist and,
when CME circuit breakers limit the trading in bitcoin futures
markets, bid/ask spreads in Shares of the Fund trading on the NYSE
Arca may be significantly wider than when bitcoin futures markets
are trading without restrictions, which may adversely impact your
ability to buy or sell Shares in the Fund at a particular
price.” The price of bitcoin can be volatile which could
cause large fluctuations in the price of
Shares.”
30. Comment: Please
provide quantitative disclosure regarding the volatility of bitcoin
and bitcoin futures. Discuss, for example, the decline in the price
of bitcoin that occurred in May 2021, the decline that
occurred on September 7, 2021, and the declines that have
occurred since November 8, 2021. Provide similar disclosure
for price volatility in bitcoin futures contracts.
Response: The
Fund has added the following language to this risk factor as
follows:
“Volatility
is a statistical measure of the dispersion of returns for a given
security or market index. Volatility represents how large an
asset's prices swing around the mean price—it is a
statistical measure of its dispersion of returns.
"According
to Bloomberg from 1/1/2019 to 5/27/2022 front month bitcoin futures
contracts exhibited an average implied 30-Day volatility of 67.71.
The highest volatility during that period was 134.07 on 7/25/19 and
the lowest was 25.62 on 4/1/2019.
"Bitcoin
can be highly volatile. For example, after a 774% price increase
from 1/1/2020 prices peaked in May 2021 and front month bitcoin
futures contracts began to decline with a peak to trough
retracement of 47.06% by 7/20/2021. Prices then rose from that low
until 11/9/2021 resulting in a price increase of 127.58%. Front
month bitcoin futures contracts prices peaked on 11/9/2021 and have
since seen a retracement of 57.05% as of 5/27/2022. Front month
bitcoin futures prices have declined 54.51% since May
2021.”
The Sponsor, page 28
31. Comment: We
note that on the Teucrium.com website you state “Teucrium
Trading is an ETF provider focused solely on U.S.
Agriculture.” 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 the risks arising from the
Sponsor’s lack of prior experience in the crypto asset
markets.
Response: The
Registrant has revised the first paragraph of the referenced
section to address the Staff's request [page
24]:
"The
Sponsor of the Trust is Teucrium Trading, LLC, a Delaware limited
liability company. The principal office of the Sponsor and the
Trust is located at Three Main Street, Suite 215, Burlington,
Vermont 05401. The Sponsor registered as a CPO with the CFTC and
became a member of the NFA on November 10, 2009. The Sponsor
registered as a Commodity Trading Advisor
(“CTA”) with the CFTC effective September 8,
2017. The Sponsor has sponsored the Trust since 2010. Sponsoring
the Fund will be the Sponsor's first experience in the crypto asset
markets. The Sponsor’s responsibilities are discussed in the
following paragraph."
The
Registrant has added the following language to the risk factor
captioned “The Fund is newly formed and may not be successful
in implementing its investment objective or attracting sufficient
assets”:
“Sponsoring
the Fund will be the Sponsor’s first experience in the crypto
asset markets.”
Operation of the Fund, page 30
32. Comment: Please
revise the second sentence of the second paragraph on page 31
to disclose what you mean by name, value, and “total weight
as a percentage of each futures contract.”
Response: The
language in this section has been updated in the prospectus. After
the fund launches, for example the following holding information
will be provided on the website:
|
Stock Ticker
|
CUSIP
|
Security Name
|
Shares
|
Price
|
Market Price
|
Weightings
|
33. Comment: Please
clarify when you will hold BTC contracts vs MBT contracts. Explain,
for example, whether you will only purchase MBT if you have
proceeds remaining from the sale of the Creation Basket that are
less than the price of a BTC contract or whether there are other
circumstances in which you would purchase MBT contracts (such as if
you have reached a BTC position limit).
Response: The
following disclosure has been added:
"The
Fund will purchase MBT contracts only if the Fund has proceeds
remaining from the sale of a Creation Basket that are less than the
price of a BTC contract. BTC and MBT will count toward an aggregate
position limit.”
34. Comment: Please
describe in greater detail your roll schedule. Provide specific
dates and times for the planned roll for each type of contract and
include a roll calendar. We note the disclosure on page 5
regarding rolled positions and that your Benchmark is the average
of the closing settlement prices for the first to expire and second
to expire Bitcoin futures contracts listed on the CME.
Response: The
following disclosure has been added:
“The
Fund's futures contract positions will be rolled on a monthly basis
by closing out the first to expire contracts prior to settlement
and then entering into the third to expire contracts which will
become the new second to expire - maintaining the 50% equal weight,
first to expire and second to expire. Fund rolling will take place
on the market business day preceding the last trading day of the
first to expire contract. The last trade day of the first to expire
contact is currently defined as the last business Friday of the
month.”
Futures Contracts, page 32
35. Comment: You
state “[t]he Fund will generally be long in the market for
bitcoin and will generally sell Bitcoin Futures Contracts only to
close out existing long positions.” Please disclose what the
exceptions would be.
Response: The
Fund intends to hold only long positions in bitcoin futures and
intends to roll its CME Bitcoin Futures prior to expiration via
sales of existing long positions and the acquisition of new long
positions as replacements for contracts sold. The word
“generally” has been removed.
Bitcoin Futures Contracts, page 32
36. Comment: Please
describe in greater detail the CME CF Bitcoin Reference Rate and
discuss how the rate is calculated based on trading on the various
constituent exchanges.
Response: The
Registrant has revised the first paragraph of the referenced risk
factor as follows:
“As
noted above, CME began offering trading in BTC Contracts in 2017,
and in MBT Contracts in 2021. Each of the contract’s final
cash settlement is based on the CME CF Bitcoin Reference Rate (the
“BRR”). The BRR was created to facilitate financial
products based on bitcoin. It serves as a once-a-day reference rate
of the U.S. dollar price of bitcoin (USD/BTC). The BRR is the rate
on which bitcoin futures contracts are cash-settled in U.S. dollars
at expiration at the CME. The BRR, which has been calculated and
published since November 2016, aggregates the trade flow of
specified bitcoin spot exchanges during a calculation window into
the U.S. dollar price of one Bitcoin as of 4:00 p.m. London
time.”
37. Comment: Please
substantiate your statement “[n]early every measurable metric
related to BTC Contracts has trended consistently up since launch
and/or accelerated upward in the past year.” Specifically
discuss each metric you base this statement on including those
referenced in this section. Please also update the data as of the
most recent practicable date and discuss the reasons for period
over period changes and any material known trends and uncertainties
evidenced for each respective metric. Also balance this disclosure
by discussing those metrics that have trended down.
Response: The
Registrant has deleted the noted disclosure.
Bitcoin, page 35
38. Comment: Please
substantially expand your disclosure in this section to
include a materially complete discussion of the bitcoin
industry.
Response: The
referenced disclosure has been replaced with the following, which
the Registrant believes represents a materially complete discussion
of the bitcoin industry.
“The Bitcoin Industry [pages 29-30]
"Bitcoin
is a digital asset that serves as the unit of account on an
open-source, decentralized, peer-to-peer computer
network. Bitcoin may be used to pay for goods and
services, stored for future use, or converted to a fiat
currency. As of the date of this prospectus, the adoption of
bitcoin for these purposes has been limited. The value of
bitcoin is not backed by any government, corporation, or other
identified body.
"The
value of bitcoin is determined in part by the supply of (which
is limited), and demand for, bitcoin in the markets
for exchange that have been organized to facilitate the
trading of bitcoin. By design, the supply of bitcoin is limited to
21 million bitcoins. As of the date of this prospectus, there
are approximately 19 million bitcoins in circulation. "Bitcoin
is maintained on the decentralized, open source,
peer-to-peer computer network (the “Bitcoin
Network”). No single entity owns or operates the Bitcoin
Network. The Bitcoin Network is accessed through software and
governs bitcoin’s creation and movement. The source code
for the Bitcoin Network, often referred to as the Bitcoin
Protocol, is open-source, and anyone can contribute to its
development.”
"The Bitcoin Network
"The
infrastructure of the Bitcoin Network is collectively
maintained by participants in the Bitcoin Network, which
include miners, developers, and users. Miners validate
transactions and are currently compensated for that service in
bitcoin. Developers maintain and contribute updates to the
Bitcoin Network’s source code, often referred to as the
Bitcoin Protocol. Users access the Bitcoin Network using
open-source software. Anyone can be a user, developer, or
miner.
"Bitcoin
is “stored” on a digital transaction ledger
commonly known as a “blockchain.” A blockchain is
a type of shared and continually reconciled database, stored
in a decentralized manner on the computers of certain users of
the digital asset and is protected by cryptography. The
Bitcoin Blockchain contains a record and history for each
bitcoin transaction.
"New
bitcoin is created by “mining.” Miners use
specialized computer software and hardware to solve a highly
complex mathematical problem presented by the Bitcoin
Protocol. The first miner to successfully solve the problem is
permitted to add a block of transactions to the Bitcoin
Blockchain. The new block is then confirmed through acceptance
by a majority of users who maintain versions of the blockchain
on their individual computers. Miners that successfully add a
block to the Bitcoin Blockchain are automatically rewarded
with a fixed amount of bitcoin for their effort plus any
transaction fees paid by transferors whose transactions are
recorded in the block. This reward system is the means by
which new bitcoin enter circulation and is the mechanism by
which versions of the blockchain held by users on a
decentralized network are kept in
consensus.”
"The Bitcoin Protocol
"The
Bitcoin Protocol is an open-source project with no
official company or group in control. Anyone can review the
underlying code and suggest changes. There are, however, a
number of individual developers that regularly contribute to a
specific distribution of bitcoin software known as the
“Bitcoin Core.” Developers of the Bitcoin Core
loosely oversee the development of the source code. There are
many other compatible versions of the bitcoin software, but
Bitcoin Core is the most widely adopted and currently provides
the de facto standard for the Bitcoin Protocol. The core
developers are able to access, and can alter, the Bitcoin
Network source code and, as a result, they are responsible for
quasi-official releases of updates and other changes to the Bitcoin
Network’s source code.
"However,
because bitcoin has no central authority, the release of
updates to the Bitcoin Network’s source code by the
core developers does not guarantee that the updates will be
automatically adopted by the other participants. Users and
miners must accept any changes made to the source code by
downloading the proposed modification and that modification
is effective only with respect to those bitcoin users and
miners who choose to download it. As a practical matter, a
modification to the source code becomes part of the Bitcoin
Network only if it is accepted by participants that
collectively have a majority of the processing power on the
Bitcoin Network. If a modification is accepted by only a percentage
of users and miners, a division will occur such that one
network will run the pre-modification source code and the
other network will run the modified source code. Such a
division is known as a “fork.”
Exchange for Related Position, page 35
39. Comment: You
state that it is likely that EFRP mechanisms will significantly
change in the future which may make it uneconomical or impossible
from a regulatory perspective for the Fund to utilize these
mechanisms. Please discuss here in what way EFRP mechanisms will
significantly change, for what reason they will change, and the
timeframe of a potential change, if known.
Response: The
Sponsor has removed this statement from the
prospectus.
Other Non-Contractual Payments by the Fund,
page 39
40. Comment: Please
disclose here that purchases and redemptions of creation units
primarily with cash may cause the Fund to incur certain costs
including brokerage costs or taxable gains or losses that it might
not have incurred if it had made redemptions in-kind. Additionally,
provide risk factor disclosure that these costs could be imposed on
the Fund, and thus decrease the Fund’s net asset value.
Disclose in the risk factor whether the $250 fee per creation or
redemption order that an authorized participant will pay is
sufficient to offset these costs, or whether it is just a nominal
fee.
Response: The
Registrant responds to each of these comments below:
●
Please disclose
here that purchases and redemptions of creation units primarily
with cash may cause the Fund to incur certain costs including
brokerage costs or taxable gains or losses that it might not have
incurred if it had made redemptions in-kind.
The
Registrant has added the following to the section of the
prospectus captioned “Creation and Redemption of
Shares,” which the Registrant believes is a more appropriate
repository of this disclosure than the referenced section
[page
35]:
"To the
extent creations and redemptions involve the exchange of cash and
cash equivalents, the Fund will incur certain costs including
brokerage costs or taxable gains or losses that it might not have
incurred if the transaction were made in-kind.”
●
Additionally,
provide risk factor disclosure that these costs could be imposed on
the Fund, and thus decrease the Fund’s net asset
value.
The
Registrant does not believe this disclosure is necessary because,
as disclosed in the section captioned “Other Non-Contractual
Payments by the Fund,” the Fund pays all of its
brokerage commissions.
●
Disclose in the
risk factor whether the $250 fee per creation or redemption order
that an authorized participant will pay is sufficient to offset
these costs, or whether it is just a nominal fee
The
Registrant has revised the penultimate sentence in the second
paragraph of “Creation and Redemption of Shares” to
state that “Authorized Purchasers pay a transaction fee of
$300 to the Custodian for each creation order they place and a fee
of $300 per order for redemptions, which is a nominal fee.
[Page
35]
Calculating NAV, page 41
41. Comment: Please
include a materially complete description of the methodology to be
used to calculate NAV. In this regard:
●
disclose how the
MBT Contract settlement price is used in the NAV
calculation;
●
discuss how the BTC
Contract settlement price referenced in the third paragraph is
determined;
●
include a
materially complete description how BRTI is calculated;
and
●
with respect to
your statement “[t]ypically, this estimate will be made
primarily by reference to the price of the BRTI at 4:00 p.m.
EST on settlement day” specify the circumstances in which
BRTI is not used to calculate NAV and describe how NAV will be
calculated in those circumstances.
Response: Each
comment is addressed below:
●
Disclose how the MBT Contract settlement price
is used in the NAV calculation – The MBT Contract
settlement price is not used in the NAV calculation because the MBT
settlement price is the same as
the BTC settlement price.
●
Discuss how the BTC Contract settlement price
referenced in the third paragraph is determined --;
The Registrant has added
the following sentence in the referenced third paragraph
[page
34]:
“CME Group staff
determines the daily settlements for BTC futures based on trading
activity on CME Globex exchange between 14:59:00 and 15:00:00
Central Time (CT), the settlement period." In this regard, the
Registrant respectfully notes that while a more detailed
description appears on the CME website, the Registrant believes
that this additional level of detail is not necessary or
appropriate for investors and would result in a
“non-user-friendly” presentation of information that is
not material.
●
Include a materially complete description how
BRTI is calculated – The Registrant believes that the
description of BRTI currently included in the last paragraph of the
section of the prospectus captioned “The Fund’s
Investment Objective” [page 2] is
materially complete, particularly given the context of that
paragraph.
●
With respect to
your statement “[t]ypically, this estimate will be made
primarily by reference to the price of the BRTI at 4:00 p.m.
EST on settlement day” specify the circumstances in which
BRTI is not used to calculate NAV and describe how NAV will be
calculated in those circumstances. – The following disclosure
has been added [page 34]:
”When a bitcoin futures contract has closed at its price
fluctuation limit the Fund will use the daily CME settlement
price.”
Creation and Redemption of Shares, page 42
42. Comment: Please
revise the second paragraph and elsewhere as appropriate to state
that shares will generally be created and redeemed in
cash.
Response: The
requested change has been made in the second paragraph of the
referenced paragraph [page 35] throughout
the prospectus by removing any reference that transactions may be
settled with bitcoin futures.
Rejection of Purchase Orders, page 43
43. Comment: We
note that under certain circumstances the Sponsor may reject
purchase and redemption orders, per the disclosure on pages 21, 43
and 44. Please also clarify whether the Sponsor may generally
suspend creations and redemptions and, if so, the circumstances
under which it may do so. In addition, please add risk factor
disclosure addressing the risks to the Fund and investors
associated with the Sponsor’s ability to reject orders and,
if applicable, generally suspend creations and redemptions. For
example, and without limitation, address the possible impact of any
rejections or suspensions on the arbitrage mechanism. Further,
based on the circumstances identified on pages 43 and 44, it
appears that the Sponsor has broad discretion to suspend purchase
and redemption orders. Please add risk factor disclosure addressing
the risks associated with this broad discretion and the possible
consequences for the Fund and investors. Finally, address any
limitations on the Sponsor’s discretion under Securities Act,
NYSE Arca rules, or the applicable approval orders permitting the
listing and trading of the fund’s shares on NYSE Arca. To the
extent there are no such limitations, please disclose this lack of
regulatory limitations and provide applicable risk factor
disclosure, including the absence of comparable protections
afforded regarding the suspension of creations and redemptions
applicable to funds regulated under the Investment Company Act of
1940.
Response: The
Registrant believes that the specific circumstances in which the
Sponsor may suspend creations and redemptions is adequately
disclosed in the sections of the prospectus captioned:
“Rejection of Purchase Orders” [page 36] and
"Suspension or Rejection of Redemption Orders” [page
37].
The
Sponsor does retain the right in its sole discretion to suspend the
right of redemption if it believed that such suspension would be in
the best interests of shareholders [page 37]: The
Registrant has revised the following risk factor on page
18:
“The
postponement, suspension or rejection of creation or redemption
orders may adversely affect an investment in the shares of the
Fund. To the extent orders are suspended or rejected, the arbitrage
mechanism resulting from the process through which Authorized
Participants create and redeem shares directly with the Fund may
fail to closely link the price of the shares to the value of the
underlying Bitcoin Futures Contracts, as measured using the
Benchmark. If this is the case, the liquidity of the shares may
decline and the price of the shares may fluctuate independently of
the Benchmark and may fall.”
With
respect to any regulatory restrictions, there are no applicable
regulatory restrictions and a risk factor to that effect has been
added as follows [page
18]:
“There are no
limitations on the Sponsor’s discretion under Securities Act,
NYSE Arca rules, or SEC listing orders permitting the listing and
trading of the fund’s shares on NYSE Arca. To the extent
there are no such limitations, Shareholders of the Fund will
therefore not enjoy the protections provided in this regard
applicable to funds regulated under the Investment Company Act of
1940.”
The Sponsor Has Conflicts of Interest, page 48
44. Comment: Please
disclose the potential future conflict of interest if the Sponsor,
a new sponsor, or sub-adviser registers as a broker-dealer or
becomes affiliated with a broker-dealer and describe the steps the
Sponsor will implement to prevent the use and dissemination of
material non-public information regarding the portfolio. Please
also clarify whether the Sponsor or any insiders have bitcoin or
bitcoin-related exposure that would create conflicts of
interest.
Response: The
Registrant has disclosed the following in the referenced section
[page
40]:
"The
Sponsor might have a potential future conflict of interest conflict
if the Sponsor, a new sponsor, or sub-adviser were to register as a
broker-dealer or become affiliated with a broker-dealer. In such
case, the Sponsor, new sponsor, or sub-adviser, as the case may be,
would develop and implement appropriate procedures designed to
prevent the use and dissemination of material non-public
information regarding the Fund's holdings. Neither the Sponsor nor
any of its executive officers have bitcoin or bitcoin-related
exposure that in their belief would create conflicts of
interest."
Financial Statements, page 66
45. Comment: We
note your disclosure that Fund financial statements will be added
by a pre-effective amendment. Please confirm you will file these
financial statements as soon as they are available, in order to
allow the staff sufficient time to complete its
review.
Response: The
Registrant so confirms.
We have
carefully considered and responded to each of the Staff's comments,
and we very much appreciate the Staff's time and effort that went
into your comment letter. We have responded to most of the Staff's
comments with the requested revised disclosure.
As soon
as the Registrant receives follow-up comments (if any) from the
Staff, it will file a pre-effective amendment to address any
follow-up comments and to include any missing information,
financial statements and exhibits. Please contact the undersigned
at (202) 312-3331 (tconner@vedderprice.com) or John Sanders at
(202) 312-3332 (jsanders@vedderprice.com) with any questions or
comments.
|
Very
truly yours,
W.
Thomas ConnerShareholder
|
|
cc:
|
Vedder
Price P.C. is affiliated with Vedder Price LLP, which operates in
England and Wales, Vedder Price (CA), LLP, which operates in
California, and Vedder Price Pte. Ltd., which operates in
Singapore.
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