Nov. 30, 2023
Regarding Question 4 in the SR-CboeBZX-2023-072, which inquires whether the surveillance-sharing agreement of the exchange with Coinbase is effective in detecting, investigating, and deterring fraud and market manipulation in the Shares. To achieve the goal of protecting investors and the public interest, there are two low-cost and time-efficient improvements from which the exchange should offer at least one to the public. 1. The first approach is the direct disclosure of public Bitcoin addresses. It leverages the inherent transparency of the Bitcoin blockchain to enable everyone to verify that there is no manipulation in the Shares. 2. The second approach involves the use of Merkle-Tree proofs. This method allows the exchange to prove the existence of funds without disclosing their exact location. Other considerations: To minimize the long-term risk of market manipulation and prevent a situation similar to what is observed in gold certificates trading, where verifying the underlying gold reserves is challenging, it is crucial to choose and maintain a robust underlying price index for Bitcoin. The CME CF Bitcoin Reference Rate currently serves as a reliable reference. To ensure and enhance the index's robustness over time, it's important to include only those spot exchanges that can demonstrate their funds are covered in a manner similar to the methods suggested above. Best regards, Leon Stöver