Filed 2026-03-27 · Period ending 2025-12-31 · 75,599 words · SEC EDGAR
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# WisdomTree Bitcoin Fund (BTCW) — 10-K
**Filed:** 2026-03-27
**Period ending:** 2025-12-31
**Accession:** 0001214659-26-003899
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/1850391/000121465926003899/)
**Origin leaf:** e3672f644212c3bb57cbdfd0d05b70df4bf4b083dd4383f892fae05fc38b5273
**Words:** 75,599
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**
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**FORM 10-K**
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal yearended December 31, 2025
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____________ to
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Commission file number 1-03480
**WISDOMTREE BITCOIN FUND**
**(formerly WisdomTree Bitcoin Trust)**
(Exact name of registrant as specified in its charter)
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Delaware |
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99-6119726 | |
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer Identification No.) | |
250 West 34th Street, 3rd Floor
New York, New York 10119
(866) 909-9473
(Address, including zip code, and telephone number,
including area code, of registrants principal executive offices)
________________________________________
**Securities registered pursuant to Section 12(b)
of the Act:**
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Title of each class |
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Trading symbol(s) |
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Name of each exchange on which registered | |
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Common Shares of Beneficial Interest of WisdomTree Bitcoin Fund |
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BTCW |
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Cboe BZX Exchange, Inc. | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes No .
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No .
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No .
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No .
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of large accelerated filer, accelerated filer, smaller reporting company, and emerging
growth company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on
and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during
the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes No .
State the aggregate market value of the shares held by non-affiliates
of the registrant as of June 30, 2025: $152,964,909.
As of February 28, 2026, WisdomTree Bitcoin Fund had 1,825,000 shares
outstanding.
**DOCUMENTS INCORPORATED BY REFERENCE:**None.
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**TABLE OF CONTENTS**
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
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PART I |
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1 | |
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ITEM 1. |
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BUSINESS |
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1 | |
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ITEM 1A. |
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RISK FACTORS |
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25 | |
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
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61 | |
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ITEM 1C. |
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CYBERSECURITY |
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ITEM 2. |
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PROPERTIES |
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ITEM 3. |
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LEGAL PROCEEDINGS |
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ITEM 4. |
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MINE SAFETY DISCLOSURES |
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PART II |
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ITEM 5. |
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
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ITEM 6. |
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RESERVED |
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ITEM 7. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 7A. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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ITEM 8. |
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FINANCIAL STATEMENTS |
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ITEM 9. |
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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ITEM 9A. |
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CONTROLS AND PROCEDURES |
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ITEM 9B. |
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OTHER INFORMATION |
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ITEM 9C. |
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DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
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PART III |
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ITEM 10. |
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
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ITEM 11. |
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EXECUTIVE COMPENSATION |
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ITEM 12. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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ITEM 13. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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ITEM 14. |
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PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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PART IV |
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ITEM 15. |
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
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ITEM 16. |
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FORM 10-K SUMMARY |
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75 | |
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**CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS**
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act), that involve substantial risks and uncertainties. The matters
discussed throughout this Report that are not historical facts are forward-looking statements with respect to the financial conditions,
results of operations, plans, objectives, future performance and business of the Trust. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expect, intend,
plan, anticipate, believe, estimate, predict, potential
or the negative of these terms or other comparable terminology. All statements (other than statements of historical fact) included in
this Annual Report that address activities, events or developments that will or may occur in the future, including such matters as movements
in the cryptocurrencies markets and indexes that track such movements, the Trusts operations, the Sponsors plans and references
to the Trusts future success and other similar matters, are forward-looking statements. These statements are only predictions.
Actual events or results may differ materially. These statements are based upon certain assumptions and analyses the Sponsor has made
based on its perception of historical trends, technology developments regarding the use of bitcoin and other digital assets, including
the systems used by the Sponsor and the Trusts Bitcoin Custodian in their provision of services to the Trust, current conditions
and expected future developments, as well as other factors appropriate in the circumstances. Whether or not actual results and developments
will conform to the Sponsors expectations and predictions, however, is subject to a number of risks and uncertainties, including
the special considerations discussed in this Annual Report, including in Part I, Item 1A Risk Factors and other filings
made by the Trust with the U.S. Securities and Exchange Commission (SEC), as well as general economic, market and business
conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and
other world economic and political developments. Consequently, all the forward-looking statements made in this Annual Report are qualified
by these cautionary statements, and there can be no assurance that actual results or developments the Sponsor anticipates will be realized
or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, the Trusts
operations or the value of its Shares. None of the Trust, the Sponsor, or the Trustee or their respective affiliates is under a duty to
update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsors expectations
or predictions.
Unless otherwise stated or the context otherwise requires, the terms
we, our and us in this Annual Report refer to the Trust.
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**PART I**
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**ITEM 1. BUSINESS**
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**Summary**
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WisdomTree Bitcoin Fund (the Trust) is an exchange-traded
fund that issues common shares of beneficial interest that are listed on the Cboe BZX Exchange, Inc. and which began trading under the
ticker symbol BTCW on January 11, 2024. The purpose of the Trust is to gain exposure to the price of bitcoin by holding
bitcoin and valuing its Shares daily based on the Reference Rate. Each Share represents a fractional undivided beneficial interest in
the net assets of the Trust. The assets of the Trust consist primarily of bitcoin held by the Trusts custodian on behalf of the
Trust.
The Trust is a Delaware statutory trust, formed on March 8, 2021, pursuant
to the Delaware Statutory Trust Act. The Trust operates pursuant to the Trust Agreement. Delaware Trust Company, a Delaware trust company,
is the Trustee of the Trust. The Trust is managed and controlled by the Sponsor, WisdomTree Digital Commodity Services, LLC, a limited
liability company formed in the state of Delaware on March 5, 2021. Coinbase Custody Trust Company LLC is the Bitcoin Custodian of the
Trust that holds all of the Trusts bitcoin on the Trusts behalf.
The fiscal year of the Trust is the calendar year and the Trust has
no fixed termination date. The Sponsor may select an alternate fiscal year. The Trust does not have any directors, officers or employees.
The Trust is managed by the Sponsor and pays the Sponsor a sponsors fee.
The Trust is not registered as an investment company under the 1940
Act and the Sponsor is not registered as an investment adviser under the Investment Advisers Act of 1940. The Trust does not hold or trade
in commodity futures contracts regulated by the CEA, as administered by the CFTC. The Trust is not a commodity pool for purposes of the
CEA and neither the Sponsor, nor the Trustee is subject to regulation as a commodity pool operator or a commodity trading adviser in connection
with the Shares.
The number of outstanding Shares is expected to increase and decrease
from time to time as a result of the creation and redemption of Baskets. The creation and redemption of Baskets requires the delivery
to the Trust or the distribution by the Trust of the amount of bitcoin represented by the NAV of the Baskets being created or redeemed.
The total amount of bitcoin required for the creation of Baskets is based on the combined net assets represented by the number of Baskets
being created or redeemed.
Further information about the Trust or the Shares can be obtained from
the website at www.wisdomtree.com/investments. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K (including any amendments thereto) filed with, or furnished to, the SEC, are made available, free of charge, at that website
as soon as reasonably practicable after such documents are so filed or furnished. Additional information regarding the Trust may also
be found on the SECs EDGAR database at www.sec.gov.
The contents of the websites referred to above and any websites referred
to herein are not incorporated into this filing. Further, any reference to the URLs of a website is intended to be inactive textual references
only.
**The Trusts Investment Objective and Strategies**
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The Trusts investment objective is to gain exposure to the price
of bitcoin, less expenses and liabilities of the Trusts operations. In seeking to achieve its investment objective, the Trust holds
bitcoin and values its Shares daily based on the value of bitcoin as reflected by the Reference Rate, which is an independently calculated
value based on an aggregation of executed trade flow of major bitcoin spot platforms. The Reference Rate currently uses substantially
the same methodology as the CME CF Bitcoin Reference Rate (BRR), including utilizing the same Constituent Bitcoin Platforms,
which is the underlying rate to determine settlement of CME bitcoin futures contracts, except that the Reference Rate is calculated as
of 4:00 p.m. Eastern Time (ET), whereas the BRR is calculated as of 4:00 p.m. London time. There can be no assurance that
the Trust will achieve its investment objective. The Trust is a passive investment vehicle that does not seek to generate returns beyond
tracking the price of bitcoin. Accordingly, the Sponsor does not speculatively sell bitcoin at times when its price is high nor does the
Sponsor speculatively acquire bitcoin at low prices in the expectation of future price increases. The Trust does not utilize leverage,
derivatives or any similar arrangements in seeking to meet its investment objective. Except with respect to securing the repayment of
Trade Credits, the Sponsor and the service providers do not loan or pledge the Trusts assets, nor do the Trusts assets serve
as collateral for any loan or similar arrangement.
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When the Trust sells or redeems its Shares, it does so in blocks of
5,000 Shares (a Basket) based on the quantity of bitcoin attributable to each Share of the Trust (net of accrued but unpaid
expenses and liabilities). These transactions take place in exchange for cash. In the future, these transactions may also take place in
exchange for bitcoin. For a subscription of Shares, the subscription is in the amount of cash needed to purchase the amount of bitcoin
represented by the Basket being created as calculated by the Administrator. For a redemption of Shares, the Sponsor arranges for the bitcoin
represented by the Basket to be sold and the cash proceeds distributed. Authorized Participants deliver cash to the Trusts account
with the Cash Custodian in exchange for Shares when they purchase Shares, and receive cash from the Cash Custodian, as applicable, when
they redeem Shares with the Trust. The Transfer Agent facilitates the processing of purchase and sale orders in Baskets from the Trust.
The Authorized Participants deliver only cash to create Shares and receive only cash when redeeming Shares. Further, Authorized Participants
do not directly or indirectly purchase, hold, deliver, or receive bitcoin 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 as part of the creation or redemption
process.
An investment in the Shares is intended to be:
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| Easily Accessible. As the Shares are listed on the Exchange, investors can invest in a portfolio comprised of bitcoin through a traditional
brokerage account. The Trust provides investors with the opportunity to access the market for bitcoin through a traditional brokerage
account without the potential barriers to entry or certain of the risks involved with holding or transferring bitcoin directly, acquiring
it from a bitcoin platform, or mining it. Investors may be able to more effectively implement strategic and tactical asset allocation
strategies by investing in the Shares as compared to other means of investing in bitcoin. | |
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| Exchange-traded and Transparent. The Shares trade on the Exchange, providing investors with an efficient means to implement various
investment strategies. Furthermore, the Trusts holdings in bitcoin are posted at www.wisdomtree.com/investments on a daily basis,
providing investors with a clear and timely picture of the Trusts holdings in bitcoin. | |
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| Competitively Priced. The Sponsors fee and certain other expenses paid by the Trust represent costs to an investor in the Shares.
An investors decision to purchase Shares may be influenced by such fees and expenses relative to the costs associated with investing
in bitcoin by other means. | |
**Bitcoin, Bitcoin Market, Bitcoin Platforms and Regulation of Bitcoin**
****
In this Annual Report, Bitcoin with an upper case B is
used to describe the system as a whole that is involved in maintaining the ledger of bitcoin ownership and facilitating the transfer of
bitcoin among parties. When referring to the digital asset within the Bitcoin network, bitcoin is written with a lower case b
(except at the beginning of sentences or paragraph sections, as below).
Bitcoin
Bitcoin is a digital asset that can be transferred among participants
on the Bitcoin network on a peer-to-peer basis via the internet. Unlike other means of electronic payments, bitcoin can be transferred
without the use of a central administrator or clearing agency. Because a central party is not necessary to administer bitcoin transactions
or maintain the bitcoin ledger, the term decentralized is often used in descriptions of bitcoin.
Bitcoin Network
Bitcoin was first described in a white paper released in 2008 and published
under the name Satoshi Nakamoto. The protocol underlying Bitcoin was subsequently released in 2009 as open-source software
and currently operates on a worldwide network of computers.
The first step in using bitcoin for transactions is generally to download
specialized software referred to as a bitcoin wallet. A users bitcoin wallet can run on a computer or smartphone,
and can be used both to send and to receive bitcoin by attributing a certain amount of bitcoin to the users
wallet address. Within a bitcoin wallet, a user can sometimes generate one or more unique bitcoin addresses, which are conceptually
similar to bank account numbers on the Bitcoin blockchain and are associated with a pair of public and private keys. After establishing
a bitcoin address, a user can send or receive bitcoin from his or her bitcoin address to another users address using the public
and private keys. Sending bitcoin from one bitcoin address to another is similar in concept to sending a bank wire from one persons
bank account to another persons bank account.
The amount of bitcoin associated with each bitcoin address is listed
in a public ledger, referred to as a blockchain. Copies of the Bitcoin blockchain exist on thousands of computers on the
Bitcoin network throughout the internet. A users bitcoin wallet will either contain a copy of the Bitcoin blockchain or be able
to connect with another computer that holds a copy of the Bitcoin blockchain.
When a bitcoin user wishes to transfer bitcoin to another user, the
sender must first request a bitcoin address from the recipient. The sender then uses his or her bitcoin wallet software to create a data
packet containing the proposed addition (often referred to as a transaction) to the Bitcoin blockchain. The proposed transaction
would reduce the senders address and increase the recipients address by the amount of bitcoin desired to be transferred,
and is sent on a peer-to-peer basis to other computers participating in the Bitcoin network.
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Bitcoin Protocol
Bitcoin is an open-source project with no official company or group
that controls the Bitcoin network, and 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, and who loosely
oversee the development of its source code. There are many other compatible versions of 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 networks source code. However, because Bitcoin has no central authority, the release of updates to the Bitcoin networks
source code by the core developers does not guarantee that the updates will be automatically adopted by the other participants in the
Bitcoin network. Users and miners must accept any changes made to the Bitcoin source code by downloading the proposed modification of
the Bitcoin networks source code. A modification of the Bitcoin networks source code is effective only with respect to those
Bitcoin users and miners who choose to download it. If a modification is accepted by only a percentage of users and miners, a division
in the Bitcoin network 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. Consequently, as a practical matter, a modification to the source code
becomes part of the Bitcoin network only if accepted by participants collectively having most of the processing power on the Bitcoin network.
There have been several prominent forks in the Bitcoin network, including forks resulting in the creation of Bitcoin Cash (August 1, 2017),
Bitcoin Gold (October 24, 2017) and Bitcoin SegWit2X (December 28, 2017), among others.
At this time, Shareholders will not receive the benefits of any forks,
and the Trust will not participate in any airdrop, notwithstanding that it may be permitted under the Trust Agreement. Therefore, the
only cryptocurrency or digital asset that the Trust may hold, barring separate regulatory approval, is bitcoin. We refer to the right
to receive any such benefit (*i.e.,* the right to participate in or benefit from a fork, airdrop or similar event) as an Incidental
Right and any such digital asset acquired through an Incidental Right as IR Virtual Currency. The Sponsor is under
no obligation to realize any economic benefit from any Incidental Rights or IR Virtual Currency on behalf of the Trust. With respect to
any fork, airdrop or similar event, the Trust will, at the direction of the Sponsor, permanently and irrevocably abandon any Incidental
Rights or IR Virtual Currency for no consideration. As the Trust will not receive any direct or indirect consideration for the Incidental
Rights or IR Virtual Currency, the value of the Shares will not reflect the value of the Incidental Rights or IR Virtual Currency.
Although the Sponsor is under no obligation to do so, the inability
to realize any economic benefit from a hard fork or airdrop could adversely affect the value of the Shares. Investors who prefer to have
a greater degree of control over events such as forks, airdrops, and similar events, and any assets made available in connection with
each, should consider investing in bitcoin directly rather than purchasing Shares. The Sponsors policy with respect to the Trusts
treatment of Incidental Rights or IR Virtual Currency can only be changed by the Exchange filing an application with the SEC seeking the
SECs approval to amend its listing rules. In the event that the Exchange receives approval to amend its listing rules and the Sponsor
seeks to change the Trusts policy with respect to forks or airdrops, the Shareholders will be given 60 days advance notice
via a posting on the Trusts website, prospectus supplement, post-effective amendment, through a current report on Form 8-K or in
the Trusts annual or quarterly reports.
Bitcoin Transactions
A bitcoin transaction is similar in concept to an irreversible digital
check. The transaction contains the senders bitcoin address, the recipients bitcoin address, the amount of bitcoin to be
sent, a transaction fee and the senders digital signature. The senders use of his or her digital signature enables participants
on the Bitcoin network to verify the authenticity of the bitcoin transaction.
A users digital signature is generated via usage of the users
so-called private key, one of two numbers in a so-called cryptographic key pair. A key pair consists of a
public key and its corresponding private key, both of which are lengthy alphanumeric codes, derived together and possessing
a unique relationship.
Public keys are associated with bitcoin addresses that are publicly
known and can accept a bitcoin transfer. Private keys are used to sign transactions that initiate the transfer of bitcoin from a senders
bitcoin address to a recipients bitcoin address. Only the holder of the private key associated with a particular bitcoin address
can digitally sign a transaction proposing a transfer of bitcoin from that particular bitcoin address.
A users public key bitcoin address may be safely distributed,
but a users private key must be kept in accordance with appropriate controls and procedures to ensure it is used only for legitimate
and intended transactions. Only by using a private key can a bitcoin user create a digital signature to transfer bitcoin to another user.
In addition, if an unauthorized third person learns of a users private key, that third person could forge the users
digital signature and send the users bitcoin to any bitcoin public key address, thereby stealing the users bitcoin.
The usage of key pairs is a cornerstone of the Bitcoin network. This
is because the use of a private key is the only mechanism by which a bitcoin transaction can be signed. If a private key is lost, the
corresponding bitcoin is thereafter permanently non-transferable. Moreover, the theft of a private key enables the thief immediate and
unfettered access to the corresponding bitcoin. Bitcoin users must therefore understand that in this regard, bitcoin is a bearer asset,
similar to cash: that is, the person or entity in control of the private key corresponding to a particular quantity of bitcoin has *de
facto*control of the bitcoin. For large quantities of bitcoin, holders often employ sophisticated security measures. For a discussion
of how the Trust secures its bitcoin, see the section titled The Bitcoin Custodian.
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The Bitcoin network incorporates a system to prevent double spending
of a single bitcoin. To prevent the possibility of double- spending a single bitcoin, each validated transaction is recorded, time stamped
and publicly displayed in a block in the Bitcoin blockchain, which is publicly available. Thus, the Bitcoin network provides
confirmation against double-spending by memorializing every transaction in the Bitcoin blockchain, which is publicly accessible and downloaded
in part or in whole by all users of the Bitcoin network software program.
The process by which bitcoin are created and bitcoin transactions are
verified is called mining. To begin mining, a user, or miner, can download and run special mining software, which, like
regular Bitcoin network software programs, turns the users computer into a node on the Bitcoin network, and also
has the ability to validate transactions and add new blocks of transactions to the blockchain.
Miners, through the use of the bitcoin software program, engage in
a set of prescribed complex mathematical calculations imposed by the Bitcoin networks software protocol, called proof of
work, in order to validate proposed transactions and bundle them into a data packet known as a block. The first miner
who successfully solves the cryptographic puzzle imposed by the Bitcoin networks software protocol is permitted to add a block
of transactions to the Bitcoin blockchain and is rewarded by a grant of newly-issued bitcoin, known as the block reward.
Bitcoin is created and allocated by the Bitcoin network protocol and distributed through a mining process subject to a strict,
well-known issuance schedule. Block rewards for mining are the method by which new bitcoin is issued. The supply of bitcoin is limited
to 21 million by the Bitcoin networks software protocol and as of December 31, 2025, there were approximately 19.97 million bitcoin
in existence.
Confirmed and validated bitcoin transactions are recorded in blocks
added to the Bitcoin blockchain. Each block contains the details of some or all of the most recent transactions that are not memorialized
in prior blocks, as well as a record of the award of bitcoin to the miner who added the new block. Each unique block can only be solved
and added to the Bitcoin blockchain by one miner; as a result, individual miners and mining pools on the Bitcoin network engage in a competitive
process of constantly increasing their computing power to improve their individual likelihood of solving new blocks. As more miners join
the Bitcoin network and its processing power increases, or if miners leave the Bitcoin network and its processing power declines, the
Bitcoin network adjusts the complexity of a block-solving equation to maintain a predetermined pace of adding a new block to the Bitcoin
blockchain approximately every ten minutes.
Bitcoin Market and Bitcoin Platforms
Bitcoin can be transferred in direct peer-to-peer transactions through
the direct sending of bitcoin over the Bitcoin blockchain from one bitcoin address to another. Among end-users, bitcoin can be used to
pay other members of the Bitcoin network for goods and services under what resembles a barter system. Consumers can also pay merchants
and other commercial businesses for goods or services through direct peer-to-peer transactions on the Bitcoin blockchain or through third-party
service providers.
In addition to using bitcoin to engage in transactions, investors may
purchase and sell bitcoin to speculate as to the value of bitcoin in the bitcoin market, or as a long-term investment to diversify their
portfolio. The value of bitcoin within the market is determined, in part, by the supply of and demand for bitcoin in the global bitcoin
market, market expectations for the adoption of bitcoin as a store of value, the number of merchants that accept bitcoin as a form of
payment, and the volume of peer-to-peer transactions, among other factors.
A bitcoin platform generally provides investors with a website that
permits investors to open accounts with the exchange and then purchase and sell bitcoin. Prices for trades on bitcoin platforms are typically
reported publicly. An investor opening a trading account must deposit an accepted government-issued currency into their account with the
bitcoin platform, or a previously acquired digital asset, before they can purchase or sell assets on the platform. The process of establishing
an account with a bitcoin platform and trading bitcoin is different from, and should not be confused with, the process of users sending
bitcoin from one bitcoin address to another bitcoin address on the Bitcoin blockchain. This latter process is an activity that occurs
on the Bitcoin network, while the former is an activity that occurs entirely on the private website operated by the bitcoin platform and
via accounts and addresses managed by the platform. The bitcoin platform typically records the investors ownership of bitcoin in
its internal books and records, rather than on the Bitcoin blockchain. The bitcoin platform ordinarily does not transfer bitcoin to the
investor on the Bitcoin blockchain unless the investor makes a request to the platform to withdraw the bitcoin in their exchange account
to an off-platform bitcoin wallet.
| | 4 | | |
| | |
Outside of bitcoin platforms, bitcoin can be traded in over-the-counter
(OTC) transactions that are not publicly reported. The OTC market is largely institutional in nature, and OTC market participants
generally consist of institutional entities, such as firms that offer two-sided liquidity for bitcoin, investment managers, proprietary
trading firms, high-net-worth individuals that trade bitcoin on a proprietary basis, entities with sizeable bitcoin holdings, and family
offices. The OTC market provides a relatively flexible market in terms of quotes, price, quantity, and other factors, although it tends
to involve large blocks of bitcoin. The OTC market has no formal structure and no open-outcry meeting place. Parties engaging in OTC transactions
will agree upon a price-often via phone or email-and then one of the two parties will then initiate the transaction. For example, a seller
of bitcoin could initiate the transaction by sending the bitcoin to the buyers bitcoin address. The buyer would then wire U.S.
dollars to the sellers bank account. OTC trades are sometimes hedged and eventually settled with concomitant trades on bitcoin
platforms.
Although bitcoin was the first digital asset, in the ensuing years,
the number of digital assets, market participants and companies in the space has increased dramatically. In addition to bitcoin, other
well-known digital assets include ether, XRP, bitcoin cash, and litecoin. The category and protocols are still being defined and evolving.
Market Volatility
Cryptocurrencies, such as bitcoin, are one of the most volatile asset
classes, even higher than small cap equities, emerging market equities or energy futures. It is not uncommon for even the most established
digital assets, such as bitcoin, to have periods of annualized volatility of over 100%.
Several factors influence those high volatility levels. Firstly, as
digital assets evolve in a fast-changing environment, major developments are commonplace. Changes in areas such as regulation, technology,
financialization, etc., can have a profound impact on digital assets potential for adoption, development and growth.
Secondly, the digital asset space lacks frameworks for fundamental
analysis of price and growth. As a new market, desired data sets can be non-existent or difficult to access. Valuation theory and frameworks
are still in development, and the estimation of digital assets intrinsic value varies dramatically depending on the use case, models and
assumption sets used.
In this situation, the digital assets market, and particularly the
bitcoin market, is very sensitive to news releases, and largely driven by sentiment. This situation may continue in the short and medium
term.
Regulation of Bitcoin and Government Oversight
As digital assets have grown in both popularity and market size, the
U.S. Congress and a number of federal and state agencies (including FinCEN, SEC, CFTC, FINRA, the Consumer Financial Protection Bureau,
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 operations of digital asset networks, digital asset users and the digital asset platform markets,
with particular focus on the extent to which digital assets can be used to launder the proceeds of illegal activities or fund criminal
or terrorist enterprises and the safety and soundness of platforms or other service-providers that hold digital assets for users. Many
of these federal and state agencies have issued consumer advisories regarding the risks posed by digital assets to investors. In addition,
federal and state agencies, and other countries have issued rules or guidance about the treatment of digital asset transactions or requirements
for businesses engaged in digital asset activity.
Various foreign jurisdictions have, and may continue to, in the near
future, propose, adopt or suggest the potential for laws, regulations or directives that affect the Bitcoin network, the bitcoin markets,
and their users, particularly bitcoin platforms and service providers that fall within such jurisdictions regulatory scope, including
to require virtual asset service providers to register and comply with an anti-money laundering (AML) and countering the
financing of terrorism framework, banning trading or shutting down digital asset platforms, ordering financial institutions to stop providing
banking or funding to any activity related to cryptocurrencies, or banning entities from providing services to any individuals or business
entities dealing with or settling digital assets, among others. There remains significant uncertainty regarding governments future
actions with respect to the regulation of digital assets and digital asset platforms. Such laws, regulations or directives may conflict
with those of the United States and may negatively impact the acceptance of Bitcoin by users, merchants and service providers outside
the United States and may therefore impede the growth or sustainability of the Bitcoin economy in the United States and globally, or otherwise
negatively affect the value of Bitcoin.
The Trust and the Sponsor have adopted and implemented policies and
procedures that are designed to comply with applicable AML laws and sanctions laws and regulations, including applicable know your customer
(KYC) laws and regulations. The Sponsor and the Trust only interact with known third-party service providers with respect
to whom the Sponsor or its affiliates have engaged in a due diligence process. Each Authorized Participant is confirmed to be a U.S. registered
broker-dealer.
Furthermore, Authorized Participants, as broker-dealers and Bitcoin
Custodian, as an entity licensed to conduct virtual currency business activity by the New York State Department of Financial Services
(NYDFS) and a limited purpose trust company subject to New York banking law, respectively, are financial institutions
subject to the U.S. Bank Secrecy Act, as amended (BSA), and U.S. economic sanctions laws. In addition, with respect to all
bitcoin delivered in connection with creation requests, the party delivering bitcoin must establish an account with the Prime Execution
Agent who has represented that diligence will be conducted to confirm that delivery is not from a digital currency address which has been
added to the list of Specially Designated Nationals whose assets are blocked under applicable sanctions laws and regulations, and with
whom U.S. persons are generally prohibited from dealing.
| | 5 | | |
| | |
The effect of any future regulatory change on the Trust or Bitcoin
is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Shares. The following are
specific risks that could have a substantial and adviser impact on the Trust and the value of the Shares:
*It may be illegal now, or in the future, to acquire, own, hold,
sell or use bitcoin in one or more countries, and ownership of, holding or trading in Shares may also be considered illegal and subject
to sanctions.*
Although currently cryptocurrencies and certain other digital assets
are not regulated or are lightly regulated in many countries, some countries have taken, and may take in the future, regulatory actions
that severely restrict the right to acquire, own, hold, sell or use such cryptocurrencies or digital assets or to exchange cryptocurrencies
or digital assets for fiat currency. Such regulatory actions or restrictions could adversely affect the value of the Shares or result
in the termination and liquidation of the Trust at a time that is disadvantageous to Shareholders or may adversely affect an investment
in the Shares.
*States may require licenses that apply to blockchain technologies
and digital assets, such as bitcoin and tokens, and token offerings. The Trust or Sponsor may be unable to comply with state licensing
requirements or policies, which may materially adversely affect the value of the Shares.*
In the case of virtual currencies, state regulators such as the NYDFS
have created new regulatory frameworks. NYDFS has implemented a regulatory framework for licensing participants in virtual currency
business activity known as the BitLicense, which is intended to focus on consumer protection. The BitLicense
regulates the conduct of businesses that are involved in virtual currencies in New York or with New York customers and prohibits
any person or entity involved in such activity from conducting such activities without a license. In addition, Californias Digital
Financial Assets Law was signed into law in October 2023, and imposes significant obligations on companies involved in virtual
currency activities within California and with California residents.
Other states, such as Texas, have published guidance on how their existing
regulatory regimes apply to virtual currencies. Some states, such as New Hampshire, North Carolina and Washington, have amended their
states statutes to include virtual currencies into existing licensing regimes. It is likely that, as blockchain technologies and
the use of virtual currencies continues to grow, additional states will take steps to monitor the developing industry.
The issuance of Shares may require such state licenses. The effect
of any future regulatory action on the Trust, bitcoin, or the Shares is impossible to predict, but such change could be substantial and
could adversely affect the value of the Shares.
*The Trust or Sponsor may be required to register as an MSB with
FinCEN and as a money transmitter in states with applicable money transmitter regulations. If the Trust fails to operate with appropriate
state or federal licenses the Trust and/or Sponsor could suffer reputational harm and also extraordinary, recurring and/or nonrecurring
expenses, which would adversely impact an investment in the Shares.*
The Trusts or Sponsors activities may require the registration
of the Trust or Sponsor as an MSB under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act. If regulatory
changes or interpretations of the Trusts or Sponsors activities require the licensing or other registration as a money transmitter
or business engaged in digital currency activity (*e.g.*, under the New York BitLicense framework) (or equivalent designation) under
state law in any state in which the Trust or Sponsor operate, the Trust or Sponsor may be required to seek a license or otherwise register
with a state regulator and comply with state regulations that may include, among other things, the implementation of anti-money laundering
programs, cyber security, consumer protection, financial and reporting requirements and maintenance of certain records and other operational
requirements. In the event of any such requirement, to the extent that the Sponsor decides to continue the Trust, the required registrations,
licensure and regulatory compliance steps may result in extraordinary, nonrecurring expenses to the Trust. Rather than incur these expenses
or comply with licensing requirements, the Sponsor may decide to terminate the Trust. Any termination of the Trust in response to the
changed regulatory circumstances may be at a time that is disadvantageous to Shareholders.
Furthermore, the process of obtaining the necessary licenses could
take an extensive period of time. There is also a risk that necessary state or federal licenses will not be granted and therefore, the
Sponsor may have to act to dissolve and liquidate the Trust. Any such termination could result in the liquidation of the Trusts
bitcoin at a time that is disadvantageous to Shareholders.
In addition, to the extent the Trust or Sponsor are found to have operated
without appropriate state or federal licenses, the Trust or Sponsor may be subject to investigation, administrative or court proceedings,
and civil or criminal monetary fines and penalties, all of which could harm the reputation of the Trust or Sponsor and affect the value
of the Shares.
| | 6 | | |
| | |
**The Trust and Bitcoin Prices**
****
Bitcoin Value and Trading Volume
The value of bitcoin is determined by the value that various market
participants place on bitcoin through their transactions. The most common means of determining the value of a bitcoin is by surveying
one or more bitcoin platforms where bitcoin is traded publicly and transparently (*e.g.,* Bitstamp, Coinbase, Crypto.com, Gemini,
Kraken, itBit, LMAX Digital, and Bullish).
On these bitcoin platforms, bitcoin is traded with publicly disclosed
valuations for each executed trade, measured by one or more fiat currencies such as the U.S. dollar or Euro. OTC dealers or market makers
do not typically disclose their trade data.
Platforms provide the necessary data with respect to the prevailing
valuations of bitcoin due to the many bitcoin platforms operating worldwide that represent a substantial percentage of bitcoin buying
and selling activity. The Benchmark Administrator relies on a selection of platforms for use in the Reference Rate. A platform selected
for use must meet the criteria of the Benchmark Administrator, which is governed by the CME CF Oversight Committee (the Oversight
Committee). The below tables reflect the average daily trading volume (in thousands of USD) and market share percentage of each
of the constituent bitcoin platforms included in the Reference Rate (the Constituent Bitcoin Platforms or Constituent
Platforms) over the preceding four calendar quarters:
|
Spot Trading Platforms Aggregate Volume BTC-USD Trading1 | |
|
Period |
Bitstamp |
Bullish Global |
Coinbase |
Crypto.com2 |
Gemini |
itBit |
Kraken |
LMAX Digital |
Other3 | |
|
Q1
2025 |
14,477,591,026 |
15,621,692,912 |
94,635,582,496 |
437,288,895 |
7,306,366,610 |
1,101,275,922 |
17,525,260,799 |
9,804,590,131 |
148,824,432,186 | |
|
Q2
2025 |
10,585,362,523 |
9,065,766,963 |
62,097,548,243 |
60,060,401,437 |
4,607,793,882 |
908,793,981 |
12,383,175,403 |
7,867,820,828 |
7,144,936,672 | |
|
Q3
2025 |
15,577,871,806 |
3,993,245,940 |
82,586,972,012 |
62,328,764,021 |
4,709,972,379 |
890,513,833 |
12,265,610,700 |
9,758,238,679 |
7,180,558,944 | |
|
Q4
2025 |
23,272,669,351 |
9,557,076,628 |
78,293,912,816 |
105,086,222,287 |
3,964,106,275 |
1,037,472,441 |
18,126,225,065 |
10,668,812,131 |
15,083,504,844 | |
|
Spot Trading Platforms Market Share of BTC-USD Trading1 | |
|
Period |
Bitstamp |
Bullish Global |
Coinbase |
Crypto.com2 |
Gemini |
itBit |
Kraken |
LMAX Digital |
Other3 | |
|
Q1 2025 |
4.67% |
5.04% |
30.55% |
0.14% |
2.36% |
0.36% |
5.66% |
3.17% |
48.05% | |
|
Q2 2025 |
6.23% |
5.34% |
36.55% |
35.35% |
2.71% |
0.53% |
7.29% |
4.63% |
4.21% | |
|
Q3 2025 |
7.82% |
2.00% |
41.44% |
31.28% |
2.36% |
0.45% |
6.15% |
4.90% |
3.60% | |
|
Q4 2025 |
8.78% |
3.61% |
29.53% |
39.64% |
1.50% |
0.39% |
6.84% |
4.02% |
5.69% | |
_________________________
|
1 |
Source: CF Benchmarks | |
|
2 |
Crypto.com became a CME CF Constituent Platform on 31 March 2025 and thus its aggregate volume is that observed for 1 day (31 March
2025). | |
|
3 |
Other exchanges include: Bitfinex; OKX; and BinanceUS. | |
The domicile, regulation and legal compliance of the bitcoin platforms
included in the Reference Rate, along with the information or reporting requirements applicable to each platform, varies. Information
regarding each bitcoin platform may be found, where available, on the websites for such bitcoin platforms and public registers for compliance
with local regulations, among other places.
Changes to the regulatory landscape, both domestic and foreign, may
impact the global trading volume of bitcoin. For example, a large percentage of the global bitcoin trading volume previously occurred
on self-reported, unregulated bitcoin platforms located in China. Throughout 2017, however, the Chinese government took several steps
to tighten controls on bitcoin platforms, culminating in a ban on domestic platforms in November 2017, which forced such platforms to
cease their operations or relocate. As a result, reported bitcoin trading volume on Chinese bitcoin platforms is now substantially lower,
representing a de minimis share of the reported global trade volume.
From time to time, there may be intra-day price fluctuations across
bitcoin platforms. However, they are generally relatively immaterial. These variances usually stem from small changes in the fee structures
on different bitcoin platforms or differences in administrative procedures required to deposit and withdraw fiat currency in exchange
for bitcoin and vice versa. The greatest variances are found at (i) smaller platforms with relatively low transaction volumes where even
small trades can be large relative to a bitcoin platforms transaction volume and as a result impact the trading price on those
platforms and (ii) bitcoin platforms that are inaccessible to the Trust.
In order to provide updated information relating to the Trust for use
by Shareholders, the Trust publishes an intraday indicative value (IIV) using the CME CF Bitcoin Real Time Index (BRTI).
One or more major market data vendors provide an IIV updated every 15 seconds, as calculated by the Exchange or a third-party financial
data provider during the Exchanges regular market session of 9:30 a.m. to 4:00 p.m. ET (the Regular Market Session).
The IIV is calculated by using the prior days closing NAV as a base and updating that value during the Regular Market Session to
reflect changes in the value of the Trusts NAV during the trading day.
| | 7 | | |
| | |
The IIVs dissemination during the Regular Market Session should
not be viewed as an actual real time update of the NAV, which is calculated only once at the end of each trading day. The IIV is widely
disseminated every 15 seconds during the Regular Market Session by one or more major market data vendors. In addition, the IIV is available
through online information services.
All aspects of the BRTI methodology are publicly available at the website
of the provider CF Benchmarks (www.cfbencharks.com). The BRTI is calculated once per second, in real time by utilizing the Order Books
of bitcoin - U.S. dollar trading pairs operated by all Constituent Platforms. An Order Book is a list of buy and sell orders
with associated limit prices and sizes that have not yet been matched, that is reported and disseminated by CF Benchmarks Ltd., as the
BRTI calculation agent. The Order Books are aggregated into one consolidated order book by the BRTI calculation agent. The mid-price volume
curve, which is the average of the bid price-volume curve (which maps transaction volume to the marginal price per cryptocurrency unit
a seller is required to accept in order to sell this volume to the consolidated order book) and the ask price-volume curve (which maps
a transaction volume to the marginal price per cryptocurrency unit a buyer is required to pay in order to purchase this volume from the
consolidated order book). The mid price-volume curve is weighted by the normalized probability density of the exponential distribution
up to the utilized depth (utilized depth being calculated as the maximum cumulative volume for which the mid spread-volume curve does
not exceed a certain percentage deviation from the mid price). The BRTI is then given by the sum of the weighted mid price-volume curve
obtained in the previous step.
**The Reference Rate**
****
The Reference Rate is a once-a-day benchmark index price for bitcoin
denominated in US Dollars that synchronizes with the traditional close of U.S. financial markets. The index is calculated and published
every day of the year at 4:00 p.m. ET and has been since its launch on February 28th, 2022. The index is provided by CF Benchmarks
as a Registered Benchmark under the UK Benchmarks Regulation overseen by the UK Financial Conduct Authority (UK FCA). The
Reference Rate was created to facilitate financial products based on bitcoin. Specifically, the Reference Rate is calculated based on
the Relevant Transactions (as defined below) of all of its Constituent Bitcoin Platforms, as follows:
|
| All Relevant Transactions that are executed between 3:00 p.m. and 4:00 p.m. ET are added to a joint list, recording the trade price
and size for each transaction. | |
|
| The list is partitioned into a number of equally sized, twelve (12) individual time intervals of five (5) minute length. | |
|
| For each of the twelve (12) partitions separately, the volume-weighted median trade price is calculated from the trade prices and
sizes of all Relevant Transactions, i.e., across all Constituent Bitcoin Platforms. A volume-weighted median differs from a standard median
in that a weighting factor, in this case trade size, is factored into the calculation. | |
|
| The Reference Rate is then given by the equally-weighted average of the volume-weighted medians of all partitions. | |
The Reference Rate does not include any futures prices in its methodology.
A Relevant Transaction is any cryptocurrency versus U.S. dollar spot trade (the Relevant Pair) that occurs
during the TWAP Period on a Constituent Bitcoin Platform in the BTC/USD pair that is reported and disseminated by a Constituent
Bitcoin Platform through its publicly available application programming interface (API) and observed by the Benchmark Administrator,
CF Benchmarks Ltd. TWAP refers to the Time Weighted Average Price period for which trade data is observed, or 60 minutes
observation window between 3:00 p.m. and 4:00 p.m. ET.
An oversight function is implemented by the Benchmark Administrator
in seeking to ensure that the Reference Rate is administered through the Benchmark Administrators codified policies for Reference
Rate integrity. The Reference Rate is administered through the Benchmark Administrators codified policies for index integrity,
which have been developed to ensure compliance with the UK Benchmark Regulation, which the Benchmark Administrator is subject as a Registered
Benchmark. The codified policies include the following:
|
| Input Data Policy: The Input Data Policy governs the data that the Benchmark Administrator uses in benchmark determinations. | |
|
| Surveillance Policy: The Surveillance Policy governs benchmark surveillance, which is accomplished through a series of measures that
are the product of an analysis of the Benchmark Administrators methodologies and their susceptibility to manipulation. | |
|
| Conflicts of Interest Policy: The Conflicts of Interest Policy governs the measures by which the Benchmark Administrator identifies,
records, mitigates, and escalates potential and actual conflicts of interest that might impact the integrity of the benchmarks. | |
|
| Governance & Oversight Framework: This framework sets forth the measures by which the Benchmark Administrator manages the benchmark
life cycle including the relevant junctures where Oversight Committee notification, escalation, review and resolution is relevant and
required including the manner in which the Benchmark Administrator identifies risks to benchmark integrity and the processes and procedures
it follows to mitigate and eliminate such risks. | |
| | 8 | | |
| | |
The Benchmark Administrators compliance such regulations has
been subject to a Limited Assurance Audit under the ISAE 3000 standard as of October 18, 2024, which is publicly available.
The Reference Rate is also subject to oversight by the Oversight Committee.
The Oversight Committee was jointly established by the Benchmark Administrator and the Chicago Mercantile Exchange (CME)
and is comprised of five members, including two who are representatives of CME, one who is a representative of the Benchmark Administrator,
and two others who bring expertise and industry knowledge relating to benchmark determination, issuance, and operations. The Oversight
Committees founding charter and quarterly meeting minutes are publicly available. The Oversight Committee meets at least quarterly
basis, and more frequently as needed, to review and make determinations of cryptocurrency pricing products, including the Reference Rate,
and attend to all other matters relating to such determination, including their definition, setting, scope, methodology, and distribution.
A platform must meet a set of predefined criteria to be approved by
the Oversight Committee, and the operation of existing Constituent Platforms are also monitored against the same criteria:
|
1. | The platforms spot trading volume of the Relevant Pair for an index must meet the minimum thresholds as detailed below for
it to be admitted as a constituent platform: | |
|
a. | The average daily volume the venue would have contributed during the observation window for the Reference Rate of the Relevant Pair
exceeds 3% for two consecutive calendar quarters. | |
|
2. | The platform has policies to ensure fair and transparent market conditions at all times and has processes in place to identify and
impede illegal, unfair or manipulative trading practices. | |
|
3. | The platform does not impose undue barriers to entry or restrictions on market participants, and utilizing the platform does not expose
market participants to undue credit risk, operational risk, legal risk or other risks. | |
|
4. | The platform complies with applicable law and regulation, including, but not limited to capital markets regulations, money transmission
regulations, client money custody regulations, KYC regulations and AML regulations. | |
|
5. | The platform cooperates with inquiries and investigations of regulators and the Benchmark Administrator upon request and must execute
data sharing agreements with CME Group. | |
Following admittance, a Constituent Platform must demonstrate that
it continues to fulfill criteria two through five. In cases where a Constituent Platforms average daily contribution falls below
three percent for the Reference Rate, then the continued inclusion of the platform as a Constituent Platform to the Relevant Pair shall
be assessed by the Oversight Committee. The Constituent Platforms have changed over time. For example, the BRR previously included OKCoin.com
(HK) and Bitfinex, both of which were removed April 2017 due to trading restrictions. As of December 31, 2025, the Constituent Platforms
include:
|
| Bitstamp: A U.K.-based platform registered as an MSB with FinCEN and licensed as a virtual currency business under the NYDFS BitLicense
as well as money transmitter in various U.S. states. It is also regulated as a Payments Institution within the European Union and is registered
as a Crypto Asset Business with the UK FCA. | |
|
| Crypto.com: A global digital asset platform registered as an MSB with FinCEN in the U.S. and with FINTRAC in Canada. It holds Money
Transmitter Licenses across numerous U.S. states. Internationally, it holds a MiCAR license and is authorized as a Class 3 Virtual Financial
Assets (VFA) Service Provider by the Malta Financial Services Authority (MFSA). In the United Kingdom, it is registered with the FCA.
It also holds a Major Payment Institution (MPI) license from the Monetary Authority of Singapore (MAS). The company also holds an Australian
Financial Services Licence (AFSL) and is registered with AUSTRAC. | |
|
| Coinbase: A U.S.-based platform registered as an MSB with FinCEN and licensed as a virtual currency business under the NYDFS BitLicense
as well as a money transmitter in various U.S. states. Subsidiaries operating internationally are further regulated as an e-money provider
(Republic of Ireland, Central Bank of Ireland) and Major Payment Institution (Singapore, Monetary Authority of Singapore). | |
|
| Kraken: A U.S.-based platform that is registered as an MSB with FinCEN in various U.S. states, Kraken is registered with the UK FCA
as a Crypto Asset Business and is authorized by the Central Bank of Ireland as a Virtual Asset Service Provider (VASP).
Kraken also holds a variety of other licenses and regulatory approvals, including from the Canadian Securities Administrators (CSA). | |
| | 9 | | |
| | |
|
| itBit: A U.S.-based platform that is licensed as a virtual currency business under the NYDFS BitLicense. It is also registered FinCEN
as an MSB and is licensed as a money transmitter in various U.S. states. | |
|
| LMAX Digital: A Gibraltar-based platform regulated by the Gibraltar Financial Services Commission (GFSC) as a DLT provider
for execution and custody services. LMAX Digital does not hold a BitLicense and is part of LMAX Group, a U.K.-based operator of a UK FCA
regulated Multilateral Trading Facility and Broker-Dealer. | |
|
| Gemini: A U.S.-based platform that is licensed as a virtual currency business under the NYDFS BitLicense. It is also registered with
FinCEN as an MSB and is licensed as a money transmitter in various U.S. states. It is also registered with the UK FCA as a Crypto Asset
Business. | |
|
| Bullish: A Gibraltar based platform operated by Bullish (GI) Limited and regulated by the GFSC as a DLT. | |
Once the Sponsor has actual knowledge of material changes to the
Constituent Bitcoin platforms used to calculate the Reference Rate, the Sponsor will reflect such changes in a prospectus supplement
or its periodic filings, as applicable.
**Calculation of NAV**
****
The Trusts NAV per Share is calculated by:
|
| taking the current market value of its total assets including, but not limited to, all bitcoin, cash or other assets; | |
|
| subtracting any liabilities; and | |
|
| dividing that total by the total number of outstanding Shares. | |
The methodology of the Reference Rate used to value bitcoin for purposes
of calculating NAV Per Share may not be deemed consistent with GAAP. To the extent the methodology used to calculate the Reference Rate
is deemed not to be consistent with GAAP, the Trust will utilize an alternative GAAP-consistent pricing source for purposes of the Trusts
periodic financial statements, as further discussed below.
The Trust Administrator calculates the NAV of the Trust once each Exchange
trading day. The NAV for a normal trading day is released after 4:00 p.m. ET. Trading during the core trading session on the Exchange
typically closes at 4:00 p.m. ET. However, NAVs are not officially struck until later in the day (often by 5:30 p.m. ET and almost always
by 8:00 p.m. ET).
The Sponsor believes that the Reference Rate is reflective of a reasonable
valuation of the average spot price of bitcoin. However, in the event the Reference Rate is not available or determined by the Sponsor
to not be reliable, the Sponsor will fair value the Trusts bitcoin holdings. The Sponsor does not anticipate that
the need to fair value bitcoin will be a common occurrence. The Sponsor reserves the right to replace the Reference Rate
with another valuation methodology which it believes accurately tracks the price of bitcoin. If the Sponsor makes the decision to materially
change the valuation methodology or replace either the Reference Rate or the Benchmark Administrator, the Sponsor will notify Shareholders
via a posting on the Trusts website, prospectus supplement, post-effective amendment, through a current report on Form 8-K or in
the Trusts annual or quarterly reports.
The Sponsor publishes the NAV, NAV per Share and the Trusts
bitcoin holdings at www.wisdomtree.com/investments after their determination and availability. Reference Rate data and the description
of the Reference Rate are based on information made publicly available by the Benchmark Administrator on its website at https://www.cfbenchmarks.com.
The Reference Rate used to determine the net asset value of the Trust
may not be consistent with GAAP. The Trusts periodic financial statements are prepared in accordance with GAAP, including the Financial
Accounting Standards Board (FASB) Accounting Standards Codification Topic 820, *Fair Value Measurements and Disclosures*
(ASC 820) and utilizes a platform-traded price from the Trusts principal market for bitcoin on the Trusts
financial statement measurement date. The Sponsor determines in its sole discretion the valuation sources and policies used to prepare
the Trusts financial statements in accordance with GAAP. The Trust obtains a price from a principal market (or in the absence of
a principal market, the most advantageous market) for bitcoin, which may be through a third-party vendor or directly from such principal
market. ASC 820 defines principal market as the market with the greatest volume and level of activity for the asset or liability.
The determination of the principal market (and, as a result, the market participants in the principal market) is made from the perspective
of the reporting entity and the reporting entity must have access to the principal (or most advantageous) market at the measurement date.
ASC 820 defines most advantageous market as the market that maximizes the amount that would be received to sell the asset
or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transportation costs.
| | 10 | | |
| | |
To determine which market is the Trusts principal market (or
in the absence of a principal market, the most advantageous market) for purposes of calculating the Trusts financial statements,
the Trust follows ASC 820, which outlines the application of fair value accounting. ASC 820 determines fair value to be the price that
would be received for bitcoin in a current sale, which assumes an orderly transaction between market participants on the measurement date.
ASC 820 requires the Trust to assume that bitcoin is sold in its principal market to market participants or, in the absence of a principal
market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market
that are independent, knowledgeable, and willing and able to transact. The Trust may transact through bitcoin trading counterparties,
in multiple markets, and its application of ASC 820 reflects this fact. The Trust anticipates that, while multiple venues and types of
markets will be available to the bitcoin trading counterparties from whom the Sponsor acquires or disposes of the Trusts bitcoin,
the principal market in each scenario is determined by looking at the market-based level of volume and bitcoin trading activity and whether
the Trust has access to that market. Bitcoin trading counterparties, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal
Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary. Based on information reasonably available to the Trust,
Exchange Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Exchange Markets
as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of
the aforementioned analysis, an Exchange Market has been selected as the Trusts principal market. The Trust determines its principal
market (or in the absence of a principal market the most advantageous market) on a quarterly basis to determine which market is its Principal
Market for the purpose of calculating fair value for the preparation of quarterly and annual financial statements.
The Sponsor has developed a process for identifying a principal market,
as prescribed in ASC 820, which outlines the application of fair value accounting. The process begins by identifying publicly available,
well established and reputable bitcoin trading venues or platform markets, which are selected by the Sponsor and its affiliates in their
sole discretion. Those markets include, but are not limited to, the Constituent Bitcoin Platforms used to calculate the Reference Rate.
The Sponsor then, through a service provider, calculates on each valuation period, the highest volume venue during the 60-minute period
prior to 4:00 ET for bitcoin and determines whether the Trust has access to that market venue. The Sponsor then identifies that market
as the principal market for bitcoin during that period, and uses the price for bitcoin from that venue at 11:59 p.m. ET as the principal
market price.
To the extent there are any determinations that the Sponsor and the
Trust Administrator make, such determinations will be made in good faith, and neither the Sponsor nor the Trust Administrator will be
liable for any errors contained therein. Neither the Sponsor nor the Trust Administrator will be liable to DTC, Authorized Participants,
the Shareholders or any other person for errors in judgment.
**Additional Information About the Trust**
****
The Trusts Fees and Expenses
The Trust pays the Sponsor a fee (the Sponsor Fee) of
0.25% per annum of the Trusts average daily net assets. The Sponsor Fee is calculated on a daily basis (accrued at 1/365, or 1/366
in a leap year, of the applicable annual Sponsor Fee percentage multiplied by the Trusts NAV) and paid on a monthly basis. The
Sponsor previously waived the entire Sponsor Fee on the first $1 billion of Trust assets for the 6-month period commencing on the day
the Trusts Shares were initially listed on the Exchange. Effective July 11, 2024, this waiver expired, and the Sponsor is no longer
waiving the Sponsor Fee. Except for periods during which all or a portion of the Sponsor Fee was being waived, the Sponsor Fee will accrue
and be payable in U.S. dollars. The Trusts only ordinary recurring expense is expected to be the Sponsor Fee. In exchange for the
Sponsors Fee, the Sponsor has agreed to assume the marketing and the following administrative expenses of the Trust: the fees of
the Trustee, the fees of the Trust Administrator, the Custodians fees, Exchange listing fees, SEC registration fees, printing and
mailing costs, tax reporting fees, audit fees, license fees and ordinary legal fees and expenses. The Sponsor also pays the costs of the
Trusts organization and the initial sale of the Shares. There is no cap on the amount of these Sponsor paid expenses.
The Sponsor may, in its sole discretion and from time to time, waive
all or a portion of the Sponsor Fee for stated periods of time. The Sponsor is under no obligation to waive any portion of its fees and
any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver.
The Trust may incur certain non-recurring expenses that are not assumed
by the Sponsor, including but not limited to, taxes and governmental charges, any applicable brokerage commissions, financing charges
or fees, Bitcoin network fees and similar transaction fees, expenses and costs of any extraordinary services performed by the Sponsor
(or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders (including, for example,
in connection with any fork of the Bitcoin blockchain), any indemnification of the Cash Custodian, Bitcoin Custodian, Trust Administrator
or other agents, service providers or counterparties of the Trust and extraordinary legal fees and expenses, including any legal fees
and expenses incurred in connection with litigation, regulatory enforcement or investigation matters.
Because the Trust does not have any income, it sells bitcoin to cover
the Sponsors Fee and expenses not assumed by the Sponsor, if any. Trust expenses not assumed by the Sponsor accrue daily and are
payable by the Trust to the Sponsor on a monthly basis, in arrears. The Trust may also be subject to other liabilities (for example, as
a result of litigation) that have also not been assumed by the Sponsor. The only source of funds to cover those liabilities are sales
of bitcoin held by the Trust. Even if there are no expenses other than those assumed by the Sponsor, and there are no other liabilities
of the Trust, the Trust will still need to sell bitcoin to pay the Sponsors Fee. The result of these sales is a decrease in the
amount of bitcoin represented by each Share.
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To cover the Sponsors Fee and expenses not assumed by the Sponsor,
the Sponsor or its delegate will cause the Trust (or its delegate) to convert bitcoin into U.S. dollars at the price available through
an affiliate of the Bitcoin Custodian. The number of bitcoins represented by a Share will decline each time the Trust pays the Sponsors
Fee or any Trust expenses not assumed by the Sponsor by transferring or selling bitcoins. The Trust is responsible for paying any costs
associated with the transfer of bitcoin to the Sponsor or the sale of bitcoin. However, under the terms of each Authorized Participant
Agreement, the Authorized Participants will be responsible for any brokerage or transaction costs associated with the sale of transfer
of bitcoin incurred in connection with the fulfillment of a creation and redemption order.
The quantity of bitcoins to be sold to permit payment of the Sponsors
Fee or Trust expenses not assumed by the Sponsor, will vary from time to time depending on the level of the Trusts expenses and
the value of bitcoins held by the Trust. Assuming that the Trust is a grantor trust for U.S. federal income tax purposes, each delivery
or sale of bitcoins by the Trust for the payment of expenses generally will be a taxable event to Shareholders.
Termination of the Trust
The Trust may be dissolved at any time for any reason, or for no reason
at all, by the Sponsor in its sole discretion. Any termination by the Trust will result in the compulsory redemption of all outstanding
Shares.
The term of the Trust is perpetual (unless terminated earlier in certain
circumstances). On and after termination of the Trust, the Sponsor or liquidating trustee will wind up the business and affairs of the
Trust and deliver Trust property upon surrender and cancellation of Shares. The Sponsor or liquidating trustee will not accept any purchase
order or redemption order after the date of dissolution. If any Shares remain outstanding after the date of dissolution of the Trust,
the Sponsor or liquidating trustee thereafter will (i) discontinue the registration of transfer of Shares; (ii) continue to collect distributions
pertaining to Trust property and hold proceeds thereof uninvested, without liability for interest; and (iii) pay the Trusts expenses
and may sell Trust property as necessary to meet those expenses. After the dissolution of the Trust, the Sponsor or liquidating trustee
will sell or otherwise liquidate the Trust property then held and after deducting any fees, expenses, taxes or other governmental charges
payable by the Trust and any expenses for the account of DTC of such Shares and any applicable taxes or other governmental charges, promptly
distribute the net proceeds from such sale to DTC. The Trustee and the Sponsor are not liable for any loss or depreciation resulting from
any sale or other disposition of property made by the Sponsor or liquidating trustee pursuant to the Sponsors or liquidating trustees
instruction or otherwise made in good faith. The proceeds of the liquidation of the Trusts assets are expected to be distributed
in cash. Shareholders are not entitled to any of the Trusts underlying bitcoin holdings upon the dissolution of the Trust.
Upon termination of the Trust, following completion of winding up of
its business by the Sponsor or liquidating trustee, the Sponsor or liquidating trustee will cause a certificate of cancellation of the
Trusts Certificate of Trust to be filed in accordance with applicable Delaware law. Upon the termination of the Trust, the Sponsor
will be discharged from all obligations under the Trust Agreement except for its certain obligations that survive termination of the Trust
Agreement.
Amendments
The Sponsor and the Trustee may agree to amend the Trust Agreement
without Shareholder consent. The Sponsor shall determine the contents and manner of notice of any Trust Agreement amendment. Such notice
may be provided on the Trusts website, prospectus supplement, post-effective amendment or through a current report on Form 8-K
and/or in the Trusts annual or quarterly reports. If an amendment to the Trust Agreement materially adversely effects the interests
of Shareholders, it will become effective for outstanding Shares 30 days after notice of such amendment is given to Shareholders. Moreover,
at the time an amendment becomes effective, by continuing to hold Shares, Shareholders are deemed to agree to the amendment and to be
bound by the Trust Agreement without specific agreement to such increase (other than through the negative consent procedure
described above).
**The Trusts Service Providers**
****
The Sponsor
The Sponsor arranged for the creation of the Trust and is responsible
for the ongoing registration of the Shares for their public offering in the United States and the listing of Shares on the Exchange. The
Sponsor does not exercise day-to-day oversight over the Trustee or the Custodians.
The Sponsor develops the marketing plan for the Trust, prepares marketing
materials regarding the Shares of the Trust, and exercises the marketing plan of the Trust on an ongoing basis. The Sponsor pays all routine
operational, administrative and ordinary expenses of the Trust out of the Sponsors fee as more fully described herein.
The Sponsor appoints and may remove the Trusts other service
providers, as well as any additional, replacement, or successor service providers. The Sponsor does not take responsibility for the Trusts
other service providers.
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The Sponsor is a wholly-owned subsidiary of WisdomTree, Inc., a global
financial innovator that, through its other subsidiaries worldwide (collectively, WisdomTree), makes available ETFs, including
those that hold bitcoin and other digital assets, as well as bitcoin futures. WisdomTree launched a European ETP holding bitcoin in 2019,
followed by the launch of European ETPs holding other digital assets in 2021 and 2022, and WisdomTree was among the first U.S. ETF providers
with an ETF investing in bitcoin futures in 2021. WisdomTree has also developed and launched next-generation digital products, services
and structures, including digital or blockchain-enabled mutual funds and tokenized assets, as well as a blockchain-native digital wallet
launched in 2023 with bitcoin and ether available for purchase, sale and holding. While the Sponsor has not managed an ETF investing in
commodities or digital assets, such as bitcoin, prior to the Trust, the Sponsor leverages WisdomTrees heritage of innovation and
extensive experience, including as described above, regarding bitcoin and the digital asset markets.
The principal office of the Sponsor is located at 250 West 34th Street,
3rd Floor, New York, NY 10119.
The Trustee
Delaware Trust Company, a Delaware trust company, acts as the trustee
of the Trust for the purpose of creating a Delaware statutory trust in accordance with the Delaware Statutory Trust Act (DSTA).
The Trustee is appointed to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement
of Section 3807(a) of the DSTA that the Trust have at least one trustee with a principal place of business in the State of Delaware.
**General Duty of Care of Trustee**
****
The Trustee is a fiduciary under the Trust Agreement; provided, however,
that the fiduciary duties and responsibilities and liabilities of the Trustee are limited by, and are only those specifically set forth
in, the Trust Agreement.
**Resignation, Discharge or Removal of Trustee; Successor Trustees**
****
The Trustee may resign at any time by giving at least 180 days advance
written notice to the Sponsor. The Sponsor may remove the Trustee at any time by giving at least 30 days advance written notice to the
Trustee. Upon effective resignation or removal, the Trustee will be discharged of its duties and obligations.
If the Trustee resigns or is removed, the Sponsor, acting on behalf
of the Shareholders, is required to use reasonable efforts to appoint a successor trustee. Any successor Trustee must satisfy the requirements
of Section 3807 of the DSTA. Upon the resignation or removal of the Trustee, the Sponsor will appoint a successor Trustee by delivering
a written instrument to the outgoing Trustee, and the successor Trustee shall become fully vested with all of the rights, powers, duties
and obligations of the outgoing Trustee under this Trust Agreement, with like effect as if originally named as Trustee, and the outgoing
Trustee shall be discharged of its duties and obligations under this Trust Agreement.
If the Trustee resigns and no successor trustee is appointed within
180 days after the date the Trustee issues its notice of resignation, the Sponsor will terminate and liquidate the Trust and distribute
its remaining assets.
The Trust Administrator
Under an Administration and Accounting Agreement, The Bank of New York
Mellon, serves as the Trust Administrator to provide certain services necessary for the operation and administration of the Trust, including
net asset value calculations, accounting and other administrative services.
The Bitcoin Custodian
The Bitcoin Custodian is responsible for safekeeping all of the bitcoin
owned by the Trust, except for bitcoin held in the Trading Account (the Trading Balance) with respect to the trading activity
facilitated by the Prime Execution Agent from time to time.
The Cash Custodian
The Bank of New York Mellon serves as the Cash Custodian and is responsible
for safekeeping all of the non-bitcoin assets owned by the Trust, except for cash held in the Trading Account with respect to the trading
activity facilitated by the Prime Execution Agent from time to time.
The Marketing Agent
The Marketing Agent is responsible for reviewing and approving the
marketing materials prepared by the Sponsor for compliance with applicable SEC and FINRA advertising laws, rules and regulations.
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The Benchmark Administrator
The Benchmark Administrator and the Sponsors affiliate, WisdomTree, Inc., which
also covers the activities hereunder, have entered into a reference rate license agreement (the License Agreement), governing
the use of the Reference Rate. The Benchmark Administrator may adjust the calculation methodology for the Reference Rate without notice
to, or consent of, the Trust or its Shareholders. Under the License Agreement, the Sponsor pays a fee to the Benchmark Administrator in
consideration of its license of Reference Rate-related intellectual property.
**Custody of the Trusts Assets and Certain Other Operational
Matters**
****
Bitcoin Custodian
The Trust has entered into an agreement with the Bitcoin Custodian,
(the Bitcoin Custody Agreement), pursuant to which the Bitcoin Custodian will custody all of the Trusts bitcoin in
one or more segregated accounts from time to time (the Vault Balance), other than the Trusts bitcoin that is maintained
in the Trading Balance with the Prime Execution Agent as described below. The Bitcoin Custodian keeps the bitcoin within the Vault Balance
and the associated private keys in a cold storage environment where the private keys are generated and secured. The Trusts
bitcoin held with the Prime Execution Agent in the Trading Balance are generally held in a hot storage environment. The
Trusts bitcoin remain in the Vault Balance, and thereby in cold storage, except when maintained in the Trading Balance in connection
with (i) receipt and delivery of bitcoin from and to third parties, such as the Prime Execution Agent (ii) selling bitcoin to pay the
Trusts expenses and liabilities that are not included in the Sponsor Fee, if any and (iii) paying the Sponsor Fee.
Custody of bitcoin typically involves the generation, storage and utilization
of private keys. These private keys are used to effect transfer transactions (*i.e.*, transfers of bitcoin from an address associated
with the private key to another address). Cold storage of private keys may involve keeping such keys on a non-networked computer or electronic
device or storing the private keys on a storage device or printed medium and deleting the keys from all computers. Cold storage is a safeguarding
method with multiple layers of protections and protocols, by which the private key(s) corresponding to the Trusts bitcoin is (are)
generated and stored in an offline manner. Private keys are generated in offline computers that are not connected to the internet so that
they are resistant to being hacked. By contrast, in hot storage, the private keys are held online, where they are more accessible, leading
to more efficient transfers, though they are potentially more vulnerable to being hacked. The Bitcoin Custodian keeps all of the Trusts
bitcoin in the Vault Balance (*i.e.*, cold storage) on an ongoing basis unless otherwise transferred to and maintained in the Trading
Balance, which takes place at the direction of the Sponsor in connection with creations and redemptions of Baskets, and to sell bitcoin
to pay Trust expenses or the Sponsor Fee, as necessary. The Trusts bitcoin held in the Vault Balance by the Bitcoin Custodian are
held in segregated wallets and therefore are not commingled with the Bitcoin Custodians or other customer assets. The private key
materials are stored within secure storage facilities within the U.S. and Europe. Exact locations are never disclosed for security reasons.
A limited number of employees at the Bitcoin Custodian are involved in private key management operations, and the Bitcoin Custodian has
represented that no single individual has access to full private keys. The Bitcoin Custodian carefully considers the design of the physical,
operational and cryptographic systems for secure storage of the Trusts private keys in an effort to lower the risk of loss or theft.
No such system is perfectly secure and loss or theft due to operational or other failure is always possible. The Sponsor and the Trusts
service providers have the ability to verify the existence of the Trusts bitcoin through information provided from the Bitcoin
Custodian.
The Bitcoin Custodians internal audit team performs periodic
internal audits over custody operations, and the Bitcoin Custodian has represented that systems and organizational control attestations
covering private key management controls are also performed on the Bitcoin Custodian by an external provider.
The Trusts bitcoin held in the Vault Balance by the Bitcoin
Custodian is not commingled with assets of the Bitcoin Custodian or its affiliates or with assets of other customers of the Bitcoin Custodian.
Except with respect to securing the repayment of Trade Credits, the Sponsor and the service providers do not loan or pledge the Trusts
assets, nor do the Trusts assets serve as collateral for any loan or similar arrangement. The Bitcoin Custodian has also agreed
in the Bitcoin Custody Agreement that it will not, directly or indirectly, lend, pledge, hypothecate or rehypothecate any of the Trusts
bitcoin, and that the Trusts bitcoin assets are not treated as general assets of the Bitcoin Custodian but are instead considered
custodial assets that remain the Trusts property. Additionally, the Bitcoin Custodian has agreed to provide the Trust or its authorized
independent public accountant with confirmation of or access to information sufficient to confirm the bitcoin held by the Bitcoin Custodian
for the Trust and that the Trusts bitcoin is held in a separate, segregated account under the Trusts name. Under the Bitcoin
Custody Agreement, the Bitcoin Custodian is required to obtain and maintain, at its sole expense, commercially reasonable insurance coverage
for the custody services it provides to the Trust. The Bitcoin Custody Agreement does not require that private key information with respect
to the Trusts bitcoin be kept in a particular physical location.
The Bitcoin Custodian may receive deposits of bitcoin but may not send
bitcoin without use of the corresponding private keys. In order to send bitcoin when the private keys are kept in cold storage, unsigned
transactions must be physically transferred to the offline cold storage facility and signed using a software/hardware utility with the
corresponding offline keys. At that point, the Bitcoin Custodian can upload the fully signed transaction to an online network and transfer
the bitcoin. Because the Bitcoin Custodian may need to retrieve private keys from offline storage prior to initiating transactions, the
initiation or crediting of withdrawals or other transactions may be delayed.
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The Bitcoin Custodian maintains a commercial crime insurance policy,
which is intended to cover the loss of client assets held in cold storage, including from employee collusion or fraud, physical loss including
theft, damage of key material, security breach or hack, and fraudulent transfer. The insurance maintained by the Bitcoin Custodian is
shared among all of the Bitcoin Custodians customers, is not specific to the Trust or to customers holding bitcoin with the Bitcoin
Custodian, and may not be available or sufficient to protect the Trust from all possible losses or sources of losses.
The Bitcoin Custodian maintains an annually renewed insurance policy
in the amount of $320 million with comprehensive coverage terms and conditions. This insurance policy covers the loss of client assets
held in cold storage at the Bitcoin Custodian. This insurance program, which has continuously run since 2013, provides the Bitcoin Custodian
and its clients with some of the broadest and deepest insurance coverage in the crypto industry, with coverage designed to be comprehensive,
including losses from employee collusion or fraud, physical loss (including theft), or damage of key material, security breach or hack,
and fraudulent transfer.
The Bitcoin Custodian has advised the Sponsor that, through its insurance
program, it has insurance coverage up to a certain amount that could be used to repay losses of the digital assets it custodies on behalf
of its clients, including the Trusts bitcoin, resulting from theft. However, Shareholders cannot be assured that the Bitcoin Custodian
will maintain adequate insurance such that coverage will cover losses with respect to the Trusts bitcoins, or that sufficient insurance
proceeds necessarily will be available to cover the Trusts losses in full.
The Bitcoin Custodians insurance covers losses resulting from
employee collusion or fraud, physical loss (including theft), or damage of key material, security breach or hack, and fraudulent transfer,
but does not cover losses resulting from the Bitcoin Custodians insolvency or certain other events. The Bitcoin Custodians
insurance will not cover losses associated with the value of bitcoin and should not be viewed as insuring against losses caused by the
Trusts operations, performance, management or any of its other activities. For events that are covered by the Bitcoin Custodians
insurance program, the Trust may be forced to share such insurance proceeds with other clients or customers of the Bitcoin Custodian,
which could reduce the amount of such proceeds that are available to the Trust. In addition, the bitcoin insurance market is limited,
and the level of insurance maintained by the Bitcoin Custodian may be substantially lower than the assets of the Trust. While the Bitcoin
Custodian maintains certain capital reserve requirements depending on the assets under custody, and such capital reserves may provide
additional sources of recovery in the event of losses, the Trust cannot be assured that the Bitcoin Custodian will maintain capital reserves
sufficient to cover actual or potential losses with respect to the Trusts digital assets.
The Bitcoin Custodian will not be liable for any amount greater than
the value of the supported digital assets on deposit in the Trusts custodial account(s) at the time of the event giving rise to
the liability, subject further to the maximum liability limit of $100 million for each cold storage address. There are no contractual
limitations on the amount of bitcoin that may be deposited in each cold storage address.
The Bitcoin Custodian may terminate the Bitcoin Custody Agreement for
any reason upon providing the applicable notice to the Trust, or immediately for Cause (as defined in the Bitcoin Custody
Agreement), including, among others, if the Trust materially breaches the Bitcoin Custody Agreement and such breach remains uncured, or
the Trust undergoes a bankruptcy event.
The Transfer Agent facilitates the settlement of Shares in response
to the placement of creation orders and redemption orders from Authorized Participants.
Cash Custodian
The Trust has entered into a Cash Custody Agreement (Cash Custody
Agreement) with the Cash Custodian under which the Cash Custodian acts as custodian of the Trusts cash and cash equivalents.
Under the Cash Custody Agreement, the Cash Custodian maintains one or more cash deposit accounts to keep all cash and open other accounts
for other non-digital assets of the Trust delivered to the Cash Custodian and, on behalf of the Trust, the Cash Custodian shall, from
time to time, accept delivery of cash and other non-bitcoin assets for safekeeping. Amounts received in connection with the sale of bitcoin
are deposited into the cash account. The Cash Custodian is required to exercise the reasonable skill, care and diligence expected of a
professional provider of custody services to institutional investors and is generally liable to the Trust for losses caused by the negligence,
willful default or fraud of the Cash Custodian.
Additional Custodial Matters
The Trust may engage third-party custodians or vendors besides the
Bitcoin Custodian and the Cash Custodian to provide custody and security services for all or a portion of its bitcoin and/or cash, and
the Sponsor will pay the custody fees and any other expenses associated with any such third-party custodian or vendor. The Sponsor may,
in its sole discretion, add or terminate custodians at any time. The Sponsor may, in its sole discretion, change the custodian for the
Trusts holdings, but it will have no obligation whatsoever to do so or to seek any particular terms for the Trust from other such
custodians.
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Prime Execution Agent
The Prime Execution Agent, Coinbase Inc., an affiliate of the Bitcoin
Custodian, provides prime execution agent services, including bitcoin trade execution, from time to time as requested by the Sponsor,
although the Sponsor may also trade directly with other third parties and/or market makers. The Trust may engage in purchases of bitcoin
(creation of Baskets) or sales of bitcoin (redemptions of Baskets, Trust expenses, or the Sponsor Fee, as necessary) by placing orders
with the Prime Execution Agent. The Prime Execution Agent routes orders placed by the Trust through the Prime Execution Agents
execution platform, where the order is executed. Each order placed by the Trust is sent, processed and settled at each Connected Trading
Venue to which it is routed. Subject to the foregoing, the Prime Execution Agent (as well as the Trust and the Sponsor) shall have no
liability, obligation, or responsibility whatsoever for the selection or performance of any trading venue, and that other trading venues
not used for the specific execution and/or trading venues not used by Coinbase may offer better prices and/or lower costs than the trading
venue used to execute the Trusts orders.
Pursuant to the agreement with the Prime Execution Agent (the Prime
Execution Agent Agreement), the Trusts bitcoin holdings and cash holdings from time to time may be temporarily held with
the Prime Execution Agent, an affiliate of the Bitcoin Custodian, in the Trading Balance, for certain limited purposes, including in connection
with creations and redemptions of Baskets, and the sale of bitcoin to pay the Sponsors Fee and any other Trust expenses not assumed
by the Sponsor, to the extent applicable, and in extraordinary circumstances, in connection with the liquidation of the Trusts
bitcoin. The Sponsor may, in its sole discretion, add or terminate prime execution agents at any time. The Sponsor may, in its sole discretion,
change the prime execution agent for the Trust, but it has no obligation whatsoever to do so or to seek any particular terms for the Trust
from other such prime execution agents. The Prime Execution Agent is experienced in providing such services with a focus, though itself
and its affiliates, on building the technology to power the crypto economy since 2012. The Prime Execution Agent currently provides services
to thousands of customers, including institutions. Any costs related to on-chain transactions through the Prime Execution Agent, including
in connection with payment of the Sponsors Fee, are borne by the Prime Execution Agent (and not the Trust or its Shareholders).
The Prime Execution Agent is compensated through the payment of a fixed
rate in basis points on any purchase or sale of bitcoin on behalf of the Trust. Where the Prime Execution Agent purchases or sells bitcoin
with respect to a creation or redemption basket, the fixed basis point fee is communicated to the applicable Authorized Participant in
advance of the order and is included in the transaction fee charged to the applicable Authorized Participant. The Trust pays such fee
when the Prime Execution Agent sells bitcoin to pay Trust expenses.
Within the Trusts Trading Balance, the Prime Execution Agent
Agreement provides that the Trust does not have an identifiable claim to any particular bitcoin (and cash). Instead, the Trusts
Trading Balance represents an entitlement to a pro rata share of the bitcoin (and cash) the Prime Execution Agent holds on behalf of customers
who hold similar entitlements against the Prime Execution Agent. In this way, the Trusts Trading Balance represents an omnibus
claim on the Prime Execution Agents bitcoin (and cash) held on behalf of the Prime Execution Agents customers. There are
no policies that would limit the amount of bitcoin that can be held temporarily in the Trading Balance maintained by the Prime Execution
Agent. However, bitcoin is only moved into the Trading Balance in connection with and to the extent of purchases and sales of bitcoin
by the Trust and such bitcoin is swept from the Trusts Trading Balance to the Trusts Vault Balance each trading day pursuant
to a regular end-of-day sweep process. The Trusts use of Trade Credits and early order cutoffs are also designed to limit the amount
of time that any of the Trusts bitcoin is held in the Trusts Trading Balance.
The Prime Execution Agent holds the bitcoin associated with customer
entitlements across a combination of omnibus cold wallets, omnibus hot wallets (meaning wallets whose private keys are generated
and stored online, in internet-connected computers or devices) or in omnibus accounts in the Prime Execution Agents name on a trading
venue (including third-party venues and the Prime Execution Agents own execution venue) where the Prime Execution Agent executes
orders to buy and sell bitcoin on behalf of its clients. The Sponsor has no control over, and for security reasons the Prime Execution
Agent does not disclose to the Sponsor, the percentage of bitcoin that the Prime Execution Agent holds for customers holding similar entitlements
as the Trust which are kept in omnibus cold wallets, as compared to omnibus hot wallets or omnibus accounts in the Prime Execution Agents
name on a trading venue. The Prime Execution Agent has represented to the Sponsor that the percentage of assets maintained in cold versus
hot storage is determined by ongoing risk analysis and market dynamics, in which the Prime Execution Agent attempts to balance anticipated
liquidity needs for its customers as a class against the anticipated greater security of cold storage.
The Prime Execution Agent is not required by the Prime Execution Agent
Agreement to hold any of the bitcoin in the Trusts Trading Balance in cold storage or to hold any such bitcoin in segregation,
and neither the Trust nor the Sponsor can control the method by which the Prime Execution Agent holds the bitcoin credited to the Trusts
Trading Balance. The Prime Execution Agent relies on bank accounts to provide its trading platform services and including temporarily
holding any cash related to a customers purchase or sale of bitcoin.
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The Prime Execution Agent Agreement provides that the Prime Execution
Agent is subject to certain conflicts of interest, including: (i) the Trusts orders may be routed to the Prime Execution Agents
own execution venue where the Trusts orders may be executed against other customers of the Prime Execution Agent or with the Coinbase
acting as principal, (ii) the beneficial identity of the counterparty purchaser or seller with respect to the Trusts orders may
be unknown and therefore may inadvertently be another client of the Prime Execution Agent, (iii) the Prime Execution Agent may execute
a trade for its own inventory (or the account of an affiliate) while in possession of that knowledge and (iv) the Prime Execution Agent
may act in a principal capacity with respect to certain orders. As a result of these and other conflicts, when acting as principal, the
Prime Execution Agent may have an incentive to favor its own interests and the interests of its affiliates over the Trusts interests.
The Prime Execution Agent does not guarantee uninterrupted access or
the services it provides to the Trust. The Prime Execution Agent Agreement provides that the Prime Execution Agent shall have no liability,
obligation, or responsibility whatsoever for the selection or performance of any Connected Trading Venue, and that other Connected Trading
Venues and/or trading venues not used by Coinbase may offer better prices and/or lower costs than the Connected Trading Venue used to
execute the Trusts orders. Under the Prime Execution Agent Agreement, the Prime Execution Agents liability is limited. Both
the Trust and the Prime Execution Agent and its affiliates (including the Bitcoin Custodian) are required to indemnify each other under
certain circumstances. The Prime Execution Agent Agreement is governed by New York law and provides that disputes arising under it are
subject to arbitration.
Coinbase Global maintains a commercial crime insurance policy, which
is intended to cover the loss of client assets held by Coinbase Global and all of its subsidiaries, including the Prime Execution Agent.
The insurance maintained by the Coinbase Insureds is shared among all of Coinbases customers, is not specific to the Trust or to
customers holding bitcoin with the Bitcoin Custodian or Prime Execution Agent and may not be available or sufficient to protect the Trust
from all possible losses or sources of losses.
Trade Credit Lender
To avoid having to pre-fund purchases or sales of bitcoin in connection
with cash creations and redemptions and sales of bitcoin to pay the Sponsors Fee and any other Trust expenses not assumed by the
Sponsor, to the extent applicable, the Trust may borrow bitcoin or cash as Trade Credit from the Trade Credit Lender on a short-term basis.
This allows the Trust to buy or sell bitcoin through the Prime Execution Agent in an amount that exceeds the cash or bitcoin credited
to the Trusts Trading Balance at the Prime Execution Agent at the time such order is submitted to the Prime Execution Agent, which
is expected to facilitate the Trusts ability to process cash creations and redemptions and pay the Sponsors Fee and any
other Trust expenses not assumed by the Sponsor, to the extent applicable, in a timely manner by seeking to lock in the bitcoin price
on the trade date for creations and redemptions or the payment date for payment of the Sponsors Fee or any other Trust Expenses
not assumed by the Sponsor, rather than waiting for the funds associated with the creation to be transferred by the Cash Custodian to
the Prime Execution Agent prior to purchasing the bitcoin or for the bitcoin held in the Vault Balance to be transferred to a Trading
Balance prior to selling the bitcoin. The amount of Trade Credit available to the Trust is at the discretion of the Trade Credit Lender
and such amount is expected to be dynamic. The Trade Credit Lender reserves the right to change the amount available to the Trust from
time to time in its sole discretion. The Trust is required by the terms of the Trade Financing Agreement, which is part of the Prime Execution
Agent Agreement, to repay any extension of Trade Credit by the Trade Credit Lender by 6:00 p.m. ET on the business day following the day
that the Trade Credit was extended to the Trust. The Trade Credit Lender is only required to extend Trade Credits to the Trust to the
extent such bitcoin or cash is actually available to the Trade Credit Lender. For example, if the Trade Credit Lender is unable to itself
borrow bitcoin to lend to the Trust as a Trade Credit, or there is a material market disruption (as determined by the Trade Credit Lender
in good faith and in its sole discretion), the Trade Credit Lender is not obligated to extend Trade Credits to the Trust. To secure the
repayment of Trade Credits, the Trust has granted a first-priority lien to the Trade Credit Lender over the assets in its Trading Balance
and Vault Balance. If the Trust fails to repay a Trade Credit within the required deadline, the Trade Credit Lender is permitted to take
control of bitcoin or cash credited to the Trusts Trading Balance and Vault Balance (though it is required to exhaust the Trading
Balance prior to taking control of assets in the Vault Balance) and liquidate them to repay the outstanding Trade Credit. Trade Credits
bear interest. Interest is payable on Trade Credits that exceeds the Federal Funds rate. Although the Trust anticipates that generally
the Authorized Participants will pre-fund their creation Baskets, the Trade Financing Arrangement will be utilized to the extent the amount
of the cash deposit necessary for a creation Basket is not pre-funded by the Authorized Participant. It is not anticipated that the Trade
Financing Arrangement will be used for a redemption Basket. To the extent the execution price of the bitcoin acquired exceeds the cash
deposit amount, the Authorized Participant would be responsible for the difference.
The Sponsor may require the Authorized Participant to deliver cash
on the trade date so that a purchase order can be settled in a timely manner, including in the event Trade Credits are unavailable from
the Trade Credit Lender or become exhausted. For a redemption order, the Trust may use financing when the bitcoin remains in the Trusts
Custody Account at the point of intended execution of a sale of bitcoin.
This arrangement could cause the execution price associated with such
trades, following the completion of the transfer, to materially deviate from the execution price that would have existed on the original
trade or payment date, which could negatively impact Shareholders.
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Interest payable on Trade Credits utilized under the Trade Financing
Agreement is the responsibility of the Authorized Participants. In addition, to the extent that the execution price for purchases and
sales of bitcoin related to creations and redemptions and sales of bitcoin in connection with paying the Sponsors Fee and any other
Trust expenses, to the extent applicable, deviate significantly from the Index price used to determine the NAV of the Trust, the Shareholders
may be negatively impacted.
Other Matters
The Shareholders recourse against the Sponsor, the Trustee,
and the Trusts other service providers for the services they provide to the Trust, including, without limitation, those relating
to the holding of bitcoin or the provision of instructions relating to the movement of bitcoin, is limited. For the avoidance of doubt,
neither the Sponsor, the Trustee, nor any of their affiliates, nor any other party has guaranteed the assets or liabilities, or otherwise
assumed the liabilities, of the Trust, or the obligations or liabilities of any service provider to the Trust, including, without limitation,
the Bitcoin Custodian. Consequently, a loss may be suffered with respect to the Trusts bitcoin that is not covered by the Bitcoin
Custodians insurance and for which no person is liable in damages. As a result, the recourse of the Trust or the Shareholders,
under applicable law, is limited.
The Trusts Transfer Agent will facilitate the settlement of
Shares in response to the placement of creation orders and redemption orders from Authorized Participants.
**Form of Shares**
****
Registered Form
Shares are issued in registered form in accordance with the Trust Agreement.
The Transfer Agent has been appointed registrar and transfer agent for the purpose of transferring Shares in certificated form. The Transfer
Agent keeps a record of all Shareholders and holders of the Shares in certified form in the registry. The Sponsor recognizes transfers
of Shares in certificated form only if done in accordance with the Trust Agreement. The beneficial interests in such Shares are held in
book-entry form through participants and/or accountholders in DTC.
Book Entry
Individual certificates are not issued for the Shares. Instead, Shares
are represented by one or more global certificates, which are deposited by the Transfer Agent with DTC and registered in the name of Cede
& Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Shareholders are limited to
(1) DTC Participants, (2) Indirect Participants, and (3) those who hold interests in the Shares through DTC Participants or Indirect Participants,
in each case who satisfy the requirements for transfers of Shares. DTC Participants acting on behalf of Shareholders holding Shares through
such participants accounts in DTC follow the delivery practice applicable to securities eligible for DTCs Same-Day Funds
Settlement System. Shares are credited to DTC Participants securities accounts following confirmation of receipt of payment.
DTC
DTC is a limited purpose trust company organized under the laws of
the State of New York and is a member of the Federal Reserve System, a clearing corporation within the meaning of the New
York Uniform Commercial Code and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities for DTC Participants and facilitates the clearance and settlement of transactions between DTC Participants through
electronic book-entry changes in accounts of DTC Participants.
**Creation and Redemption of Shares**
****
The Trust issues and redeems Baskets on a continuous basis. Baskets
may be created or redeemed only by Authorized Participants and are only issued or redeemed in exchange for a corresponding amount of cash,
whereby such amount of cash for a trading day is disclosed to Authorized Participants prior to the time that the Exchange is open for
regular trading on such trading day (*i.e.,* the night before such trading day). As of December 31, 2025, a Basket required delivery
of approximately $462,000 (based on the Trusts NAV per share computed using the Reference Rate), although the amount of bitcoin
used to determine the cash necessary to purchase the creation of a Basket, or to be sold upon redemption of a Basket, will decrease over
the life of the Trust, due to the payment or accrual of fees and other expenses or liabilities payable by the Trust. No Shares are issued
unless the Cash Custodian has allocated to the Trusts account the corresponding amount of cash. Authorized Participants pay a transaction
fee for each order they place to create or redeem one or more Baskets. Transaction fees are expected to include commissions, taxes, and
transaction and market impact costs, as applicable, in relation to the Trusts purchase or sale of bitcoin related thereto. The
price of bitcoin, the Trusts NAV and the price of a Basket could rise or fall substantially between the time a creation order or
redemption order is submitted and the time the amount of the purchase price in respect thereof is determined, and the risk of such price
movements will be borne solely by the Authorized Participant.
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The transfers of bitcoin necessary for creations or redemptions require
on-chain transactions represented on the Bitcoin blockchain. Bitcoin transactions that occur on the blockchain are susceptible
to delays due to bitcoin network outages, congestion, spikes in transaction fees demanded by miners, or other problems or disruptions.
To the extent that bitcoin transfers from the Trading Balance to the Vault Balance (creations) or from the Vault Balance to the Trading
Balance (redemptions) are delayed due to congestion or other issues with the bitcoin network, applicable order settlement could be delayed.
Further, disruption of services or actions at the Prime Execution Agent, Bitcoin Custodian, Cash Custodian, Transfer Agent or Sponsor
would have the potential to delay applicable order settlement.
The Authorized Participants deliver only cash to create Shares and
receive only cash when redeeming Shares. Further, Authorized Participants do not directly or indirectly purchase, hold, deliver, or receive
bitcoin 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 as part of the creation or redemption process.
The Trust creates Shares by receiving bitcoin 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 bitcoin. Further, the third-party does not act as an agent of the Authorized Participant with respect to the delivery of the bitcoin
to the Trust or act at the direction of the Authorized Participant with respect to the delivery of the bitcoin to the Trust. The Trust
redeems shares by delivering bitcoin 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. Further, the third-party does not act as an agent of the Authorized
Participant with respect to the receipt of the bitcoin from the Trust or act at the direction of the Authorized Participant with respect
to the receipt of the bitcoin from the Trust.
Secondary Market Transactions
Authorized Participants are the only persons that may place orders
to create and redeem Baskets. Authorized Participants must be registered broker-dealers or other securities market participants, such
as banks and other financial institutions that are not required to register as broker-dealers to engage in securities transactions. An
Authorized Participant is under no obligation to create or redeem Baskets, and an Authorized Participant is under no obligation to offer
to the public Shares of any Baskets it does create.
Authorized Participants that do offer to the public Shares from the
Baskets they create will do so at per-Share offering prices that are expected to reflect, among other factors, the trading price of the
Shares on the Exchange, the NAV of the Trust at the time the Authorized Participant purchased the Baskets, the NAV of the Shares at the
time of the offer of the Shares to the public, the supply of and demand for Shares at the time of sale, and the liquidity of bitcoin or
other portfolio investments. Baskets are generally redeemed when the price per Share is at a discount to the NAV per Share. Shares initially
comprising the same Basket but offered by Authorized Participants to the public at different times may have different offering prices.
An order for one or more Baskets may be placed by an Authorized Participant on behalf of multiple clients. Authorized Participants who
make deposits with the Trust in exchange for Baskets receive no fees, commissions or other forms of compensation or inducement of any
kind from either the Trust or the Sponsor and no such person has any obligation or responsibility to the Sponsor or the Trust to effect
any sale or resale of Shares.
Shares trade in the secondary market on the Exchange. Shares may trade
in the secondary market at prices that are lower (discount) or higher (premium) relative to their NAV per Share. The amount of the discount
or premium in the trading price relative to the NAV per Share may be influenced by various factors, including the number of Shareholders
who seek to purchase or sell Shares in the secondary market and the liquidity of bitcoin. However, the Sponsor believes that the Basket
size of 5,000 shares enable Authorized Participants and market makers to manage inventory and facilitate and effective arbitrage mechanism
for the Trust. In addition, an investor may incur costs attributable to the difference between the highest price a buyer is willing to
pay to purchase shares (bid) and the lowest price a seller is willing to accept for shares (ask) when buying and selling shares in the
secondary market (the bid/ask spread).
**Description of the Shares**
****
The beneficial interest in the Trust is divided into shares. Each Share
of the Trust represents an equal beneficial interest in the net assets of the Trust, and each holder of Shares is entitled to receive
such holders pro rata share of distributions of income and capital gains, if any. The Shares of the Trust are listed on the Exchange
under the symbol BTCW. The Trusts Shares may be bought and sold in the secondary market like any other exchange-listed
security.
Description of Limited Rights
The Shares do not represent a traditional investment and should not
be viewed as similar to shares of a corporation operating a business enterprise with management and a board of directors.
A shareholder does not have the statutory rights normally associated with the ownership of shares of a corporation; however, the DSTA
does provide shareholders the right to bring oppression or derivative actions. All of the Shares are of the
same class with equal rights and privileges. Each of the Shares is transferable through the book-entry system of DTC, is fully paid and
nonassessable. Shareholders have the right to vote only if expressly required under Delaware or federal law or rules or regulations of
the Exchange, or if submitted to the Shareholders by the Sponsor in its sole discretion. The Shares do not entitle their holders to any
conversion or pre-emptive rights or any redemption rights or rights to distributions.
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**Duties of the Sponsor**
****
The general fiduciary duties that would otherwise be imposed on the
Sponsor (which would make its operation of the Trust as described herein impracticable due to the strict prohibition imposed by such duties
on, for example, conflicts of interest on behalf of a fiduciary in its dealings with its beneficiaries), are replaced entirely by the
terms of the Trust Agreement (to which terms all Shareholders, by subscribing to the Shares, are deemed to consent). Additionally, under
the Trust Agreement, the Sponsor has the following obligations as a sponsor of the Trust:
|
| devote such of its time to the affairs of the Trust as it shall, in its discretion exercised in good faith, determine to be necessary
to carry out the purposes of the Trust for the benefit of the Shareholders; | |
|
| execute, file, record and/or publish all certificates, statements and other documents and do any and all other things as may be appropriate
for the formation, qualification and operation of the Trust and for the conduct of its affairs in all appropriate jurisdictions; | |
|
| retain on behalf of the Trust independent public accountants to audit the accounts of the Trust; | |
|
| employ attorneys to represent the Sponsor and, as necessary, the Trust; | |
|
| select and enter into agreements with the Trustee and any other service provider to the Trust; | |
|
| use its best efforts to maintain the status of the Trust as a grantor trust for U.S. federal income tax purposes under Subpart E,
Part I of Subchapter J of the Code; | |
|
| monitor all fees charged to the Trust, and the services rendered by the service providers to the Trust, to determine whether the fees
paid by, and the services rendered to, the Trust are at competitive rates and are the best price and services available under the circumstances,
and if necessary, renegotiate the fee structure to obtain such rates and services for the Trust; | |
|
| Enter into an Authorized Participant Agreement with each Authorized Participant and discharge the duties and responsibilities of the
Trust and the Sponsor; | |
|
| Receive directly or through its delegates from Authorized Participants and process properly submitted creation orders; | |
|
| Receive directly or through its delegates from Authorized Participants and process properly submitted redemption orders (if authorized),
as may from time to time be permitted by the Trust Agreement; | |
|
| Interact with the Bitcoin Custodian, Cash Custodian and any other party as required; | |
|
| cause the Trust to comply with all rules, orders and regulations of the Exchange to which the Trust is subject as a result of the
listing, quotation or trading of the Shares on the Exchange, and take all such other actions that may reasonably be taken and are necessary
for the Shares to remain listed, quoted or traded on the Exchange until the Trust is terminated or the Shares are no longer listed, quoted
or traded on the Exchange; | |
|
| perform such other services as the Sponsor believes the Trust may from time to time require; and | |
|
| in general, to carry out any other business in connection with or incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power herein set forth,
either alone or in association with others, and to do every other act or thing incidental or appurtenant or growing out of or connected
with the aforesaid business or purposes, objects or powers. | |
To the extent that at law (common or statutory) or in equity, the Sponsor
has duties (including fiduciary duties) or liabilities to the Trust, the Shareholders or to any other person, the Sponsor will not be
liable to the Trust, the Shareholders or to any other person for its good faith reliance on the provisions of the Trust Agreement unless
such reliance constitutes fraud, bad faith, or willful misconduct on the part of the Sponsor.
**Liability and Indemnification**
****
Trustee
The Trustee will not be liable for the acts or omissions of the Sponsor,
nor will the Trustee be liable for supervising or monitoring the performance and the duties and obligations of the Sponsor or the Trust
under the Trust Agreement. The Trustee will not be personally liable under any circumstances, except for its own fraud, bad faith, or
willful misconduct.
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The Trustee or any officer, affiliate, director, employee, or
agent of the Trustee (each, an Indemnified Person) shall be indemnified by the Trust from and against any and all
losses, damages, liabilities, claims, actions, suits, costs, expenses, disbursements (including the reasonable fees and expenses of
counsel and fees and expenses incurred in connection with enforcement of its indemnification rights hereunder), taxes and penalties
of any kind and nature whatsoever (collectively, Expenses), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with respect to the performance of the Trust Agreement, the
creation, operation or termination of the Trust or the transactions contemplated hereby; provided, however, that the Trust shall not
be required to indemnify any Indemnified Person for any Expenses which are a result of the willful misconduct, bad faith or
negligence of an Indemnified Person. To the fullest extent permitted by law and by the requirement for treatment of the Trust as a
grantor trust for tax purposes, Expenses to be incurred by an Indemnified Person shall, from time to time, be advanced by, or on
behalf of, the Sponsor prior to the final disposition of any matter upon receipt by the Sponsor of an undertaking by, or on behalf
of, such Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be
indemnified under the Trust Agreement.
Sponsor
The Sponsor and its affiliates and their respective members, managers,
directors, officers, employees, agents and controlling persons (each, a Covered Person) shall have no liability to the Trust
or to any Shareholder or other Covered Person for any loss suffered by the Trust which arises out of any action or inaction of such Covered
Person if such course of conduct did not constitute fraud, bad faith or willful misconduct of such Covered Person. Subject to the foregoing,
neither the Sponsor nor any other Covered Person shall be personally liable for the return or repayment of all or any portion of the purchase
price paid by a Shareholder for its Shares, it being expressly agreed that any such return made pursuant to this Trust Agreement shall
be made solely from the assets of the Trust without any rights of contribution from the Sponsor or any other Covered Person. A Covered
Person shall not liable for the conduct or misconduct of any delegate selected by the Sponsor with reasonable care.
The Sponsor and any other Covered Person shall be indemnified by the
Trust against any losses, judgments, liabilities, expenses and amounts arising out of or in connection with the performance of its obligations
under the Trust Agreement, any actions taken in accordance with the provisions of the Trust agreement or with its activities for the Trust,
provided that (i) the Sponsor was acting on behalf of, or performing services for, the Trust and such liability or loss was not the result
of fraud, bad faith, willful misconduct, or a material breach of the Trust Agreement on the part of the Sponsor and (ii) any such indemnification
will be recoverable only from the Trust Estate, as defined within the Trust Agreement. Any amounts payable to the Sponsor and any Covered
Person under the Trust Agreement may be payable in advance. The Sponsor has no obligation to appear in, prosecute or defend any legal
action that in its opinion may involve it in any expense or liability; provided, however, that the Sponsor may, in its discretion, undertake
any action that it may deem necessary or desirable in respect of the Trust Agreement and the rights and duties of the parties hereto and
the interests of the Shareholders and, in such event, the legal expenses and costs of any such action will be expenses and costs of the
Trust and the Sponsor will be entitled to be reimbursed therefor by the Trust.
**Federal Income Tax Considerations**
****
The following discussion of the material U.S. federal income tax consequences
that generally apply to the purchase, ownership and disposition of Shares by a U.S. Shareholder (as defined below), and certain U.S. federal
income consequences that may apply to an investment in Shares by a Non-U.S. Shareholder (as defined below). The discussion below is based
on the Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations promulgated thereunder and
judicial and administrative interpretations of the Code, all as in effect on the date of this Annual Report and all of which are subject
to change either prospectively or retroactively. The tax treatment of Shareholders may vary depending upon their own particular circumstances.
Certain Shareholders (including but not limited to banks, financial institutions, insurance companies, regulated investment companies,
real estate investment trusts, tax-exempt organizations, tax-exempt or tax- advantaged retirement plans or accounts, brokers or dealers,
traders, partnerships for U.S. federal income tax purposes, persons holding Shares as a position in a hedging, straddle,
conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes, persons
whose functional currency is not the U.S. dollar, persons required for U.S. federal income tax purposes to accelerate the
recognition of any item of gross income with respect to the Shares as a result of such income being recognized on an applicable financial
statement, or other investors with special circumstances) may be subject to special rules not discussed below. In addition, the following
discussion applies only to Shareholders who hold Shares as capital assets (generally, property held for investment). Moreover,
the discussion below does not address the effect of any state, local or foreign tax law consequences that may apply to an investment in
Shares. Purchasers of Shares are urged to consult their own tax advisers with respect to all federal, state, local and foreign tax law
considerations potentially applicable to their investment in Shares.
For purposes of this discussion, a U.S. Shareholder is
a Shareholder that is:
|
| an individual who is treated as a citizen or resident of the United States for U.S. federal income tax purposes; | |
|
| a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws
of the United States, any state thereof or the District of Columbia; | |
|
| an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or | |
|
| a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one
or more United States persons have the authority to control all substantial decisions of the trust. | |
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If a partnership or other entity or arrangement treated as a partnership
for U.S. federal income tax purposes holds Shares, the tax treatment of a partner generally depends upon the status of the partner and
the activities of the partnership. If you are a partner of a partnership holding Shares, the discussion below may not be applicable, and
we urge you to consult your own tax adviser for the U.S. federal income tax implications of the purchase, ownership and disposition of
such Shares.
Taxation of the Trust
The Sponsor and the Trustee treat the Trust as a grantor trust
for U.S. federal income tax purposes. Although not free from doubt due to the lack of directly governing authority, the Trust should be
classified as a grantor trust for U.S. federal income tax purposes (and the following discussion assumes such classification).
As a result, the Trust itself should not be subject to U.S. federal income tax. Instead, the Trusts income and expenses should
flow through to the Shareholders, and the Trustee reports the Trusts income, gains, losses and deductions to the
IRS on that basis. It is possible that the IRS or another tax authority could assert a position contrary to one or all of those conclusions
and that a court could sustain that contrary position. Neither the Sponsor nor the Trustee will request a ruling from the IRS with respect
to the classification of the Trust for U.S. federal income tax purposes or with respect to any other matter. If the IRS were to assert
successfully that the Trust is not classified as a grantor trust, the Trust would likely be classified as a partnership
for U.S. federal income tax purposes, which may affect the timing and other tax consequences to the Shareholders, and might be classified
as a publicly traded partnership that would be taxable as a corporation for U.S. federal income tax purposes, in which case the Trust
would be taxed in the same manner as a regular corporation on its taxable income and distributions to Shareholders out of the earnings
and profits of the Trust would be taxed to Shareholders as ordinary dividend income. However, due to the uncertain treatment of digital
currency for U.S. federal income tax purposes, there can be no assurance in this regard. Except as otherwise indicated, the remainder
of this discussion assumes that the Trust is classified as a grantor trust for U.S. federal income tax purposes.
Taxation of U.S. Shareholders
Shareholders are treated, for U.S. federal income tax purposes, as
if they directly owned a pro rata share of the underlying assets held in the Trust. Shareholders are also treated as if they directly
received their respective pro rata shares of the Trusts income, if any, and as if they directly incurred their respective pro rata
shares of the Trusts expenses. For purposes of this discussion, and unless stated otherwise, it is assumed that all of a Shareholders
Shares are acquired on the same date and at the same price per Share. Shareholders that hold multiple lots of Shares, or that are contemplating
acquiring multiple lots of Shares, should consult their own tax advisers as to the determination of the tax basis and holding period for
the underlying bitcoin related to such Shares.
Current IRS guidance on the treatment of convertible virtual currencies
classifies bitcoin as property that is not currency for U.S. federal income tax purposes and clarifies that bitcoin could
be held as a capital asset, but it does not address several other aspects of the U.S. federal income tax treatment of bitcoin. Because
bitcoin is a new technological innovation, the U.S. federal income tax treatment of bitcoin or transactions relating to investments in
bitcoin may evolve and change from those discussed below, possibly with retroactive effect. In this regard, the IRS indicated that it
has made it a priority to issue additional guidance related to the taxation of virtual currency transactions, such as transactions involving
bitcoin. While it has started to issue such additional guidance, whether any future guidance will adversely affect the U.S. federal income
tax treatment of an investment in bitcoin or in transactions relating to investments in bitcoin is unknown. Moreover, future developments
that may arise with respect to digital currencies may increase the uncertainty with respect to the treatment of digital currencies for
U.S. federal income tax purposes. This discussion assumes that any bitcoin the Trust may hold is properly treated for U.S. federal income
tax purposes as property that may be held as a capital asset and is not currency for purposes of the provisions of the Code relating to
foreign currency gain and loss.
The Trust may use bitcoin to pay certain expenses of the Trust, which
under current IRS guidance would be treated as a sale of such bitcoin. Although the Trust generally does not intend to sell bitcoin for
other purposes, it may do so in connection with cash redemption transactions, or if necessary to pay certain expenses that must be paid
in cash. As and when the Trust sells bitcoin (for example to generate cash to pay fees or expenses) or is treated as selling bitcoin (for
example by using bitcoin to pay fees or expenses), a Shareholder will recognize a gain or loss in an amount equal to the difference between
(a) the Shareholders pro rata share of the amount realized by the Trust upon the sale and (b) the Shareholders tax basis
for its pro rata share of the bitcoin that was sold. A Shareholders tax basis for its share of any bitcoin sold by the Trust should
generally be determined by multiplying the Shareholders total basis for its share of all of the bitcoin held in the Trust immediately
prior to the sale, by a fraction the numerator of which is the amount of bitcoin sold, and the denominator of which is the total amount
of the bitcoin held in the Trust immediately prior to the sale. After any such sale, a Shareholders tax basis for its pro rata
share of the bitcoin remaining in the Trust should be equal to its tax basis for its share of the total amount of the bitcoin held in
the Trust immediately prior to the sale, less the portion of such basis allocable to its share of the bitcoin that was sold or treated
as sold.
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| | |
Upon a Shareholders sale of some or all of its Shares, the Shareholder
will be treated as having sold the portion or all, respectively, of its pro rata share of the bitcoin held in the Trust at the time of
the sale that is attributable to the Shares sold. Accordingly, the Shareholder generally will recognize gain or loss on the sale in an
amount equal to the difference between (a) the amount realized pursuant to the sale of the Shares, and (b) the Shareholders tax
basis for the portion of its pro rata share of the bitcoin held in the Trust at the time of sale that is attributable to the Shares sold,
as determined in the manner described in the preceding paragraph. Based on current IRS guidance, such gain or loss (as well as any gain
or loss realized by a Shareholder on account of the Trust selling bitcoin) will generally be long-term or short-term capital gain or loss,
depending upon whether the Shareholder has a holding period of greater than one year in its pro rata share of the bitcoin that was sold.
If, in the future, the Trust transacts in-kind, an in-kind
redemption of some or all of a Shareholders Shares in exchange for the underlying bitcoin represented by the Shares redeemed generally
will not be a taxable event to the Shareholder. The Shareholders tax basis for the bitcoin received in the in-kind redemption generally
will be the same as the Shareholders tax basis for the portion of its pro rata share of the bitcoin held in the Trust immediately
prior to the in-kind redemption that is attributable to the Shares redeemed. The Shareholders holding period with respect to the
bitcoin received generally should include the period during which the Shareholder held the Shares redeemed in-kind. A subsequent sale
of the bitcoin received by the Shareholder generally will be a taxable event, unless a nonrecognition provision of the Code or Treasury
Regulations applies to such sale.
After any sale or redemption of less than all of a Shareholders
Shares, the Shareholders tax basis for its pro rata share of the bitcoin held in the Trust immediately after such sale or redemption
generally will be equal to its tax basis for its share of the total amount of the bitcoin held in the Trust immediately prior to the sale
or redemption, less the portion of such basis that is taken into account in determining the amount of gain or loss recognized by the Shareholder
upon such sale or redemption for cash or, in the case of an in-kind redemption, that is treated as the basis of the bitcoin received by
the Shareholder in the in-kind redemption.
If a hard fork occurs in the Bitcoin blockchain, Incidental Rights
or IR Virtual Currency may become available to the Trust. The IRS has held that a hard fork resulting in the creation of new units of
cryptocurrency is a taxable event giving rise to ordinary income. If such a transaction occurs, the Trust, at the direction of the Sponsor,
will as soon as possible direct the Bitcoin Custodian to irrevocably and permanently abandon, for no consideration, such Incidental Rights
or IR Virtual Currency.
3.8% Tax on Net Investment Income
Certain U.S. Shareholders who are individuals are required to pay a
3.8% tax on the lesser of the excess of their modified adjusted gross income over a threshold amount ($250,000 for married persons filing
jointly and $200,000 for single taxpayers) or their net investment income, which generally includes capital gains from the
disposition of property. This tax is in addition to any capital gains taxes due on such investment income. A similar tax applies to estates
and trusts. U.S. Shareholders should consult their own tax advisers regarding the effect, if any, this tax may have on their investment
in the Shares.
Brokerage Fees and Trust Expenses
Any brokerage or other transaction fee incurred by a Shareholder in
purchasing Shares is treated as part of the Shareholders tax basis in the underlying assets of the Trust. Similarly, any brokerage
fee incurred by a Shareholder in selling Shares will reduce the amount realized by the Shareholder with respect to the sale.
Shareholders are required to recognize the full amount of gain or loss
upon a sale or deemed sale of bitcoin by the Trust (as discussed above), even though some or all of the proceeds of such sale are used
by the Trustee to pay Trust expenses. Shareholders may deduct their respective pro rata shares of each expense incurred by the Trust to
the same extent as if they directly incurred the expense. Shareholders who are individuals, estates or trusts, however, may be required
to treat some or all of the expenses of the Trust as miscellaneous itemized deductions. An individual may not deduct miscellaneous itemized
deductions for tax years beginning after December 31, 2017, and before January 1, 2026. For tax years beginning after December 31, 2025,
individuals may deduct certain miscellaneous itemized deductions only to the extent they exceed in the aggregate 2% of the individuals
adjusted gross income. Similar rules apply to certain miscellaneous itemized deductions of estates and trusts. In addition, such deductions
may be subject to phase outs and other limitations under applicable provisions of the Code.
Investment by Certain Retirement Plans
Individual retirement accounts (IRAs) and participant-directed
accounts under tax-qualified retirement plans are limited in the types of investments they may make under the Code. Potential purchasers
of Shares that are IRAs or participant-directed accounts under a Code section 401(a) plan should consult with their own tax advisors as
to the tax consequences of a purchase of Shares.
United States Information Reporting and Backup Withholding
The Trustee files certain information returns with the IRS, and provides
certain tax-related information to Shareholders, in connection with the Trust. To the extent required by applicable regulations, each
Shareholder will be provided with information regarding its allocable portion of the Trusts annual income, expenses, gains and
losses (if any). A U.S. Shareholder may be subject to United States backup withholding tax in certain circumstances unless it provides
its taxpayer identification number and complies with certain certification procedures. Non-U.S. Shareholders may have to comply with certification
procedures to establish that they are not a United States person, and some Non-U.S. Shareholders may be required to meet certain information
reporting or certification requirements imposed by the Foreign Account Tax Compliance Act, in order to avoid certain information reporting
and withholding tax requirements.
| | 23 | | |
| | |
The amount of any backup withholding will be allowed as a credit against
a Shareholders U.S. federal income tax liability and may entitle the Shareholder to a refund, provided that the required information
is furnished to the IRS in a timely manner.
Taxation in Jurisdictions Other Than the United States
Prospective purchasers of Shares that are based in or acting out of
a jurisdiction other than the United States are advised to consult their own tax advisers as to the tax consequences under the laws of
such jurisdiction (or any other jurisdiction other than the United States to which they are subject) of their purchase, holding, sale
and redemption of or any other dealing in Shares and, in particular, as to whether any value added tax, other consumption tax or transfer
tax is payable in relation to such purchase, holding, sale, redemption or other dealing.
**Purchase by Employee Benefit Plans**
****
The Employee Retirement Income Security Act of 1974 (ERISA)
and/or Section 4975 of the Code impose certain requirements on: (i) employee benefit plans and certain other plans and arrangements, including
individual retirement accounts and annuities, Keogh plans and certain collective investment funds or insurance company general or separate
accounts in which such plans or arrangements are invested, that are subject to Title I of ERISA and/or Section 4975 of the Code (collectively,
Plans); and (ii) persons who are fiduciaries with respect to the investment of assets treated as plan assets
within the meaning of U.S. Department of Labor (the DOL) regulation 29 C.F.R. 2510.3-101, as modified by Section
3(42) of ERISA (the Plan Assets Regulation), of a Plan. Investments by Plans are subject to the fiduciary requirements and
the applicability of prohibited transaction restrictions under ERISA and the Code.
Governmental plans within the meaning of Section 3(32)
of ERISA, certain church plans within the meaning of Section 3(33) of ERISA and non-U.S. plans described in
Section 4(b)(4) of ERISA, while not subject to the fiduciary responsibility and prohibited transaction provisions of Title I of ERISA
or Section 4975 of the Code, may be subject to any federal, state, local, non-U.S. or other law or regulation that is substantially similar
to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans are advised to consult with their counsel prior to an
investment in the Shares.
In contemplating an investment of a portion of Plan assets in the Shares,
the Plan fiduciary responsible for making such investment should carefully consider, taking into account the facts and circumstances of
the Plan, the Risk Factors discussed below and whether such investment is consistent with its fiduciary responsibilities.
The Plan fiduciary should consider, among other issues, whether: (1) the fiduciary has the authority to make the investment under the
appropriate governing plan instrument; (2) the investment would constitute a direct or indirect non-exempt prohibited transaction with
a party in interest or disqualified person within the meaning of ERISA and Section 4975 of the Code respectively;
(3) the investment is in accordance with the Plans funding objectives; and (4) such investment is appropriate for the Plan under
the general fiduciary standards of investment prudence and diversification, taking into account the overall investment policy of the Plan,
the composition of the Plans investment portfolio and the Plans need for sufficient liquidity to pay benefits when due.
When evaluating the prudence of an investment in the Shares, the Plan fiduciary should consider the DOLs regulation on investment
duties, which can be found at 29 C.F.R. 2550.404a-1.
It is intended that: (a) none of the Sponsor, the Trustee, the Bitcoin
Custodian, the Cash Custodian or any of their respective affiliates (the Transaction Parties) has through this report and
related materials provided any investment advice within the meaning of Section 3(21) of ERISA to the Plan in connection with the decision
to purchase or acquire such Shares; and (b) the information provided in this report and related materials will not make a Transaction
Party a fiduciary to the Plan.
**Intellectual Property**
****
WisdomTree, Inc. is the licensor of certain trademarks, service marks
and trade names of the Trust. WisdomTree, Inc. also owns trademark registrations for the Sponsor. The Sponsor relies upon these trademarks
through which it markets its services and strives to build and maintain brand recognition in the market and among current and potential
investors. WisdomTree, Inc. is not responsible for, and has not participated in, the determination of the timing, prices, or quantities
of Shares of the Trust to be issued or in the determination or calculation of the equation by which the Shares of the Trust are redeemable.
| | 24 | | |
| | |
**ITEM 1A. RISK FACTORS**
****
**Summary of Risk Factors**
****
Below is a summary of the principal factors that make an investment
in the Shares speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized
in this risk factor summary, and other risks that we face, can be found below and should be read in conjunction with the other information
included in this annual report on Form 10-K, including the Trusts financial statements and related notes thereto, and our other
filings with the SEC, before making an investment decision regarding the Shares. See the section titled Glossary of Defined Terms
for the definition of certain capitalized terms used in this annual report. All other capitalized terms used, but not defined, herein
have the meanings given to them in the Trust Agreement.
|
| There can be no assurance that the Trust will achieve its investment objective. | |
|
| There is no assurance as to whether the Trust will be profitable or meet its expenses and liabilities. | |
|
| An investment in the Trust carries with it the inherent risks associated with investments in bitcoin, the trading prices for which
have exhibited high levels of volatility and may continue to do so. Because of such volatility, Shareholders could lose all or substantially
all of their investment in the Trust. | |
|
| Investors considering a purchase of Shares of the Trust should carefully consider how much of their total assets should be exposed
to the bitcoin market, and should fully understand, be willing to assume, and have the financial resources necessary to withstand, the
risks involved in the Trusts investment strategy, and be in a position to bear the potential loss of their entire investment in
the Trust. | |
|
| The value of Shares depends on the development and acceptance of the Bitcoin network. The Bitcoin network is in the early stages
of development and has a limited history, and there is no assurance that usage of the Bitcoin network, and bitcoin itself, will
continue to grow. The slowing or stopping of the development of the Bitcoin network or acceptance of the Bitcoin network may
adversely affect an investment in the Trust. | |
|
| The trading prices of many digital assets, including bitcoin, have experienced extreme volatility in recent periods and may continue
to do so. Extreme volatility in the future, including declines in the trading prices of bitcoin, could have a material adverse effect
on the value of the Shares and the Shares could lose all or substantially all of their value. | |
|
| Regulation of bitcoin and the Bitcoin network continues to evolve in both the U.S. and foreign jurisdictions, which may result in
restrictions on the use of bitcoin or otherwise impact the demand for bitcoin. | |
|
| Disruptions at bitcoin platforms and in the OTC market could adversely affect the availability of bitcoin. | |
|
| The loss or destruction of certain private keys, including by the Bitcoin Custodian, could prevent the Trust from accessing
its bitcoin. Loss of these private keys may be irreversible and could result in the loss of all or substantially all of an investment
in the Trust. | |
|
| Bitcoin transactions are irrevocable and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly
or unexpected bitcoin transactions could adversely affect an investment in the Trust. | |
|
| The lack of full insurance and Shareholders limited rights of legal recourse against the Trust and its service providers expose
the Trust and its Shareholders to the risk of loss of the Trusts bitcoin for which no person or entity is liable. | |
|
| The lack of using a bank custodian, or the loss of a critical banking relationship for, or the failure of a bank used by, the Trust,
could adversely impact the Trust, its ability to operate or could cause losses to the Trust. | |
|
| The Reference Rate has a limited history and the price of bitcoin reflected therein is an average composite reference rate calculated
using volume-weighted trading price data from certain bitcoin platforms. These bitcoin platforms may change over time and the Benchmark
Administrator may remove or add bitcoin platforms to the Reference Rate in the future, as well as the provisions of its publicly available
criteria (the CF Constituent Platform Criteria) accessible on its website at www.cfbenchmarks.com. The Reference Rate could
fail or may not otherwise accurately track the global bitcoin price, which could adversely affect the value of the Shares. | |
|
| The Trusts return will likely not match the performance of the price of bitcoin because the Trust incurs operating expenses.
Further, the amount of bitcoin represented by the Shares will decline over time. | |
|
| The NAV of the Trust may not always correspond to the market price of its Shares or the global price of bitcoin for a number of reasons,
including price volatility, trading activity, normal trading hours for the Trust, the calculation methodology of the NAV, and/or the closing
of bitcoin platforms due to fraud, failure, security breaches or otherwise. As a result, Baskets may be created or redeemed at a dollar
value that differs from the market price of the Shares. Consequently, an Authorized Participant may be able to create or redeem a Basket
of Shares at a discount or a premium to NAV. Investors also should note that the size of the Trust in terms of total assets held may change
substantially over time and from time to time as Baskets are created and redeemed. | |
|
| Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no
fiduciary duties to the Trust and its Shareholders other than as provided in the Trust Agreement, which may permit them to favor their
own interests to the detriment of the Trust and its Shareholders. | |
| | 25 | | |
| | |
The following risks, some of which have occurred and any of which may
occur in the future, can have a material adverse effect on our business or financial performance, which in turn can affect the price of
the Shares. These are not the only risks we face. There may be other risks we are not currently aware of or that we currently deem not
to be material but may become material in the future.
Risk Factors Associated with bitcoin and the Bitcoin Network
**Digital assets such as bitcoin are relatively new, and the value
of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies and to the fundamental
investment characteristics of digital assets that are uncertain and difficult to evaluate.**
Digital assets such as bitcoin are relatively new, and the value of
the Shares is influenced by a wide variety of factors that are uncertain and difficult to evaluate, such as the infancy of their development,
their dependence on technologies such as cryptographic protocols, their dependence on the role played by miners and developers and the
potential for malicious activity. For example, the following are some of the risks that could materially adversely affect the value of
the Shares:
|
| Bitcoins lack of a physical form, reliance on technology for its creation, existence and transactional validation and its decentralization
may subject its integrity to the threat of malicious attacks and technological obsolescence. | |
|
| As an intangible asset without centralized issuers or governing bodies, bitcoin has been, and may in the future be, subject to security
breaches, coordinated manipulation, cyberattacks or other malicious activities, as well as human errors or computer malfunctions that
may result in the loss or destruction of private keys needed to access such assets. If such threats are realized or the measures or controls
created or implemented to secure the bitcoin holdings fail, it could result in a partial or total misappropriation or loss of the Trusts
bitcoin holdings, and the Trusts financial condition and operating results would be harmed. | |
|
| The trading prices of bitcoin have experienced extreme volatility in recent periods and may continue to do so. For example, there
were steep increases in the value of bitcoin over the course of 2021, and multiple market observers asserted that bitcoin was experiencing
a bubble. These increases were followed by steep drawdowns throughout 2022 in bitcoin trading prices. These episodes of
rapid price appreciation followed by steep drawdowns have occurred multiple times throughout bitcoins history, including in 2011-2012,
2013-2015, and 2017-2018, before repeating again in 2021-2022. During the 12 months ended December 31, 2025, bitcoin prices continued to exhibit extreme volatility. | |
Extreme volatility may persist and the value of the Shares
may significantly decline in the future without recovery. The digital asset markets may still be experiencing a bubble or may experience
a bubble again in the future. For example, in the first half of 2022, each of Celsius Network, Voyager Digital Ltd., and Three Arrows
Capital declared bankruptcy, resulting in a loss of confidence in participants of the digital asset ecosystem and negative publicity surrounding
digital assets more broadly. In November 2022, FTX Trading Ltd. (FTX), one of the largest digital asset trading platforms
by volume at the time, halted customer withdrawals amid rumors of the companys liquidity issues and likely insolvency, which were
subsequently corroborated by its CEO. Shortly thereafter, FTXs CEO resigned and FTX and many of its affiliates filed for bankruptcy
in the United States, while other affiliates have entered insolvency, liquidation, or similar proceedings around the globe, following
which the U.S. Department of Justice brought criminal fraud and other charges, and the SEC and CFTC brought civil securities and commodities
fraud charges, against certain of FTXs and its affiliates senior executives, including its former CEO. In addition, several
other entities in the digital asset industry filed for bankruptcy following FTXs bankruptcy filing, such as BlockFi Inc. and Genesis
Global Capital, LLC (Genesis). In response to these events, the digital asset markets have experienced extreme price volatility
and other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence
in the digital asset markets. These events have also negatively impacted the liquidity of the digital asset markets as certain entities
affiliated with FTX engaged in significant trading activity. If the liquidity of the digital asset markets continues to be negatively
impacted by these or similar events, digital asset prices, including bitcoin, may continue to experience significant volatility or price
declines and confidence in the digital asset markets may be further undermined.
| | 26 | | |
| | |
While, regulatory and enforcement scrutiny increased through
the end of 2024, including from, among others, the Department of Justice, the SEC, the CFTC, the White House and Congress, as well as
state regulators and authorities, the current U.S. presidential administration has signaled its desire to strengthen U.S. leadership in
the digital assets space through the issuance of executive orders and the establishment of an interagency working group that is tasked
with proposing a regulatory framework governing the issuance and operation of digital assets in the United States in early 2025. Meanwhile,
the SEC officially rescinded Staff Accounting Bulletin 121 and established a new Crypto Task Force focused on providing
clarity on the application of the federal securities laws to digital assets and collaborating with the digital assets industry and the
public towards establishing an appropriate regulatory framework. Certain members of Congress have also outlined a proposed bicameral roadmap
for digital asset legislation to address inconsistencies in digital asset classifications. In 2023, the D.C. Circuit Court found that
the SECs denial of the Grayscale Bitcoin Trusts listing was arbitrary and capricious under the Administrative
Procedures Act in light of the SECs approval of two similar bitcoin futures-based exchange-traded products (ETPs).
In the immediate aftermath of this court decision, the price of bitcoin increased from nearly $26,000 to over $28,100 and reached record
highs during 2025 before retreating. The exact timeline and impact of these recent regulatory developments on the Trusts business
is uncertain and it is not possible to predict at this time what risks, if any, that regulatory developments may pose to the Trust, its
service providers or to the digital asset industry as a whole.
Extreme volatility in the future, including declines in the
trading prices of bitcoin, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially
all of their value. The Trust is not actively managed and will not take any actions to take advantage, or mitigate the impacts, of volatility
in the price of bitcoin.
|
| The loss or destruction of a private key required to access a digital asset such as bitcoin may be irreversible. If a private key
is lost, destroyed or otherwise compromised, including by the Bitcoin Custodian, the Trust will be unable to access the bitcoin corresponding
to that private key, resulting in loss. | |
|
| Digital asset networks and the software used to operate them are in the early stages of development. Digital assets have experienced,
and the Sponsor expects will experience in the future, sharp fluctuations in value. Given the infancy of the development of digital asset
networks, parties may be unwilling to transact in digital assets, which would dampen the growth, if any, of digital asset networks, including
the Bitcoin network. Because bitcoin
is a digital asset, the value of the Shares is subject to a number of factors relating to the fundamental investment characteristics of
digital assets, including the fact that digital assets are bearer instruments and a theft, compromise, or destruction of the associated
private keys could result in permanent loss of the asset. | |
|
| Digital asset networks are dependent upon the internet. A disruption of the internet or a digital asset network, such as the Bitcoin
network, would affect the ability to transfer digital assets, including bitcoin, and, consequently, adversely affect their value. | |
|
| Because bitcoins have no physical existence beyond the record of transactions on the Bitcoin blockchain, a variety of technical factors
related to the Bitcoin blockchain could also impact the price of bitcoin. For example, malicious attacks by miners who validate
bitcoin transactions, inadequate mining fees to incentivize validating of bitcoin transactions, hard forks of the Bitcoin blockchain into multiple
blockchains, and advances in quantum computing could undercut the integrity of the Bitcoin blockchain and negatively affect the price
of bitcoin. | |
|
| The acceptance of software patches or upgrades by a significant, but not overwhelming, percentage of the users and miners in a digital
asset network, such as the Bitcoin network, could result in a fork in such networks blockchain, resulting in the
creation of multiple separate networks, which could compete with one another for users, miners, and developers. This could adversely affect
the Bitcoin network and bitcoin prices. | |
|
| Governance of many digital asset networks, including the Bitcoin network, is by voluntary consensus and open competition. As a result,
there may be a lack of consensus or clarity on the governance of the Bitcoin network, which may stymie the Bitcoin networks utility
and ability to grow and solve challenges or lead to forks. In particular, it may be difficult to find solutions or marshal
sufficient effort to overcome current or future problems on the Bitcoin network. | |
|
| The foregoing notwithstanding, the Bitcoin networks software protocol is informally managed by a group of core developers that
propose amendments to the Bitcoin networks source code. | |
|
| The core developers evolve over time, largely based on self-determined participation. To the extent that a significant majority of
users and miners adopt amendments to the Bitcoin network, the Bitcoin network will be subject to new protocols that may adversely affect
the value of bitcoin. | |
|
| The open-source structure of many digital asset network protocols, such as the protocol for the Bitcoin network, means that developers
and other contributors are generally not directly compensated for their contributions in maintaining and developing such protocols. As
a result, the developers and other contributors of a particular digital asset may lack a financial incentive to maintain or develop the
network or may lack the resources to adequately address emerging issues. Alternatively, some developers may be funded by companies whose
interests are at odds with other participants in a particular digital asset network. A failure to properly monitor and upgrade the software
protocol of the Bitcoin network could damage the network, and adversely affect the value of bitcoin. | |
| | 27 | | |
| | |
|
| Bitcoin has only recently become selectively accepted as a means of payment by merchants and retail and commercial businesses, and
use of bitcoin by consumers to pay such merchants and businesses remains limited. As a result, the price of bitcoin may be primarily
determined by speculators and miners, thus contributing to price volatility that makes retailers less likely to accept it as a form of
payment in the future. | |
|
| Miners, developers and users may switch to or adopt certain digital asset networks at the expense of their engagement with other digital
asset networks, which may negatively impact those networks, including the Bitcoin network. | |
|
| Over the past several years, digital asset mining operations have become more costly as they have evolved from individual users mining
with computer processors, graphics processing units and first-generation application specific integrated circuit machines to professionalized
mining operations using specialized hardware or sophisticated machines. The reduction in mining rewards of bitcoin, including block reward
halving events, which are events that occur after a specific period of time that reduce the block reward earned by miners, could be inadequate
to incentivize miners to continue to perform mining activities. If the profit margins of digital asset mining operations are not sufficiently
high, digital asset miners are more likely to immediately sell digital assets, earned by mining, resulting in an increase in liquid supply
of that digital asset, which would generally tend to reduce that digital assets market price. Moreover, concentration of mining
operations could lead to a small number of mining operations having significant control or influence over the Bitcoin network. | |
|
| To the extent that any miners cease to record transactions that do not include the payment of a transaction fee in solved blocks or
do not record a transaction because the transaction fee is too low, such transactions will not be recorded on the Bitcoin blockchain until
a block is solved by a miner who does not require the payment of transaction fees or is willing to accept a lower fee. Any widespread
delays in the recording of transactions could result in a loss of confidence in the Bitcoin network. | |
|
| In the past, flaws in the source code for digital assets have been exposed and exploited, including flaws that disabled some functionality
for users, exposed users personal information and/or resulted in the theft of users digital assets. The cryptography underlying
bitcoin could prove to be flawed or ineffective, or developments in mathematics and/or technology, including advances in digital computing,
algebraic geometry and quantum computing, could result in such cryptography becoming ineffective. Quantum computing technology is an emerging
phenomenon which, because it is still developing, makes it difficult to predict its ultimate effect on the future value of bitcoin and
other digital assets. However, if quantum computing technology is able to advance and significantly increase its capacity relative to
the capacity of todays leading quantum computers, it could potentially undermine the viability of many of the cryptographic algorithms
used across the worlds information technology infrastructure, including the cryptographic algorithms used for digital assets like
bitcoin. If quantum computing is able to advance in that way, there is a risk that quantum computing could result in the cryptography
underlying the Bitcoin network becoming ineffective, which, if realized, could compromise the security of the Bitcoin network, or allow
a malicious actor to compromise the wallets holding bitcoin owned by the Trust or others on the Bitcoin network, which would result in
losses to Shareholders. While various actors in the Bitcoin community are taking steps to enable the uses of cryptographic algorithms
that would be resistant to advanced quantum computers, there is no guarantee that new quantum-proof architectures will be built and appropriate
transitions will be implemented across the network at scale in a timely manner; any such changes could require the achievement of broad
consensus within the Bitcoin network community and a fork (or multiple forks), and there can be no assurance that such consensus would
be achieved or the changes implemented successfully. If any of the foregoing were to occur, it could result in losses to Shareholders.
In any of these circumstances, a malicious actor may be able to compromise the security of the Bitcoin network or take the Trusts
bitcoin, which would adversely affect the value of the Shares. Moreover, functionality of the Bitcoin network may be negatively affected
such that it is no longer attractive to users, thereby dampening demand for bitcoin. Even if another digital asset other than bitcoin
were affected by similar circumstances, any reduction in confidence in the source code or cryptography underlying digital assets generally
could negatively affect the demand for digital assets and therefore adversely affect the value of the Shares. | |
|
| Banks and other established financial institutions may refuse to process funds for bitcoin transactions; process wire transfers to
or from bitcoin platforms, bitcoin-related companies or service providers; or maintain accounts for persons or entities transacting in
bitcoin. This could dampen liquidity in the market and damage the public perception of digital assets generally or any one digital asset
in particular, such as bitcoin, and their or its utility as a payment system, which could decrease the price of digital assets generally
or individually. Further, the lack of availability of banking services could prevent the Trust from being able to complete the timely
liquidation of bitcoin and withdrawal of assets from the Bitcoin Custodian even if the Sponsor determined that such liquidation were appropriate
or suitable. | |
Additionally, because digital assets, including bitcoin, have been
in existence for a short period of time and are continuing to develop, there may be additional risks in the future that are impossible
to predict or evaluate as of the date of this registration statement.
| | 28 | | |
| | |
**The value of the Shares relates directly to the value of bitcoin,
the value of which may be highly volatile and subject to fluctuations due to a number of factors.**
The value of the Shares relates directly to the value of the bitcoin
held by the Trust. The price of bitcoin has fluctuated widely and may continue to experience significant price fluctuations, which could
adversely affect the value of the Shares.
The price of bitcoin could drop precipitously (including to zero).
Several factors may affect the price of bitcoin, including:
|
| Regulatory changes, whether in or outside the United States, which inhibit (or ban) the holding and/or transacting in bitcoin. For
example, while the recent activities under the current U.S. presidential administration and the SEC have indicated a desire to strengthen
U.S. leadership in the digital assets space through the issuance of executive orders and the establishment of an interagency working group
that is tasked with proposing a regulatory framework governing the issuance and operation of digital assets in the United States. It is
possible that regulators in the United States or foreign countries may create new regulations or interpret laws in a manner that adversely
affects the price of bitcoin. The growth of the digital assets industry in general, and the use and acceptance of bitcoin in particular,
may also impact the price of bitcoin and is subject to a high degree of uncertainty. | |
|
| Global bitcoin existence was approximately 19,970,000, as of December 31, 2025, although not all of such bitcoin were in circulation
as of such date, which amount varies day-over-day. The pace of worldwide growth in the adoption and use of bitcoin may depend, for instance,
on public familiarity with digital assets, ease of buying and accessing bitcoin, institutional demand for bitcoin as an investment asset,
consumer demand for bitcoin as a means of payment, regulatory or legislative developments and the availability and popularity of alternatives
to bitcoin. Even if growth in bitcoin adoption occurs in the near or medium-term, there is no assurance that bitcoin usage will continue
to grow over the long term; | |
|
| The adoption of bitcoin as a medium of exchange, store-of-value or other consumptive asset and the maintenance and development of
the open-source software protocol of the Bitcoin network, and speculative expectations related thereto; | |
|
| Forks in the Bitcoin network; | |
|
| Disruptions, failures, unavailability, or interruptions in service of trading venues for bitcoin, such as, for example, the announcement
by the digital asset platform FTX Trading that it would freeze withdrawals and transfers from its accounts and subsequent filing for bankruptcy
protection; | |
|
| The filing for bankruptcy protection by, liquidation of, or market concerns about the financial viability of digital asset custodians,
trading venues, lending platforms, investment funds, or other digital asset industry participants, such as the filing for bankruptcy protection
by digital asset trading venues FTX Trading and BlockFi and digital asset lending platforms Celsius Network and Voyager Digital Holdings
in 2022, the ordered liquidation of the digital asset investment fund Three Arrows Capital in 2022, the announced liquidation of Silvergate
Bank in 2023, the government-mandated closure and sale of Signature Bank in 2023, and the placement of Prime Trust, LLC into receivership
following a cease-and-desist order issued by the Nevada Department of Business and Industry in 2023; | |
|
| Investors expectations with respect to interest rates, the rates of inflation of fiat currencies or bitcoin, and digital asset
and fiat currency conversion and exchange rates; | |
|
| Regulatory, legislative, enforcement and judicial actions that adversely affect the price, ownership, transferability, trading volumes,
legality or public perception of bitcoin, or that adversely affect the operations of or otherwise prevent digital asset custodians, trading
venues, lending platforms or other digital assets industry participants from operating in a manner that allows them to continue to deliver
services to the digital assets industry; | |
|
| Developments in mathematics or technology, including in digital computing, algebraic geometry and quantum computing, that could result
in the cryptography used by the Bitcoin blockchain becoming insecure or ineffective; | |
|
| Monetary policies of governments, trade restrictions, currency devaluations and revaluations and regulatory measures or enforcement
actions, if any, that restrict the use of bitcoin as a form of payment or the purchase of bitcoin on the bitcoin markets; | |
|
| Increased competition from other forms of digital assets or payment services, including digital currencies constituting legal tender
that may be issued in the future by central banks, or digital assets meant to serve as a medium of exchange by major private companies
or other institutions. | |
|
| Global or regional political, economic or financial conditions, events and situations; | |
|
| Consumer and investor preferences and perceptions of bitcoin specifically and digital assets generally; | |
|
| Decreased confidence in bitcoin or digital asset platforms generally due to the failure of certain bitcoin or digital asset platforms
or their being subject to hacks, such as the February 2025 hack of the crypto exchange Bybit Fintech Limited (Bybit) that
resulted in the theft of over $1.5 billion of ETH, service outages, regulatory action, or manipulative trading activity, as well as to
the increase or lack of regulation and transparency associated with some of them; | |
|
| Fiat currency withdrawal and deposit policies on bitcoin platforms; | |
| | 29 | | |
| | |
|
| The liquidity of bitcoin markets; | |
|
| Levels of speculative interest and trading activity in bitcoin and other digital asset markets; | |
|
| Large transfers, transactions, or sales of bitcoin by significant holders of bitcoin, including accounts held by centralized exchanges
(such as in liquidation), amounts re-entering the market related to dormant accounts or addresses (including those attributed to Satoshi
Nakamoto), in addition to investment and trading activities of large holders of bitcoin in general; | |
|
| A short squeeze resulting from speculation on the price of bitcoin, if aggregate short exposure exceeds the number of
Shares available for purchase; | |
|
| An active derivatives market for bitcoin or for digital assets generally; | |
|
| Negative publicity, media, or social media coverage or sentiment due to events in or relating to, or perception of, bitcoin or the
broader digital assets industries or markets, which may include (i) public perception that bitcoin can be used as a vehicle to circumvent
sanctions, including sanctions imposed on Russia or certain regions related to the ongoing conflict between Russia and Ukraine; (ii) expected
or pending civil, criminal, regulatory enforcement or other high profile actions against major participants in the bitcoin ecosystem;
(iii) additional filings for bankruptcy protection or bankruptcy proceedings of major digital asset industry participants, such as the
bankruptcy proceeding of FTX Trading and its affiliates; and (iv) the actual or perceived environmental impact of bitcoin and related
activities, including environmental concerns raised by private individuals, governmental and non-governmental organizations, and other
actors related to the energy resources consumed in the bitcoin mining process; (v) the restriction of access to cryptocurrency by service
providers or financial institutions, such as banks, disallowing the purchase of cryptocurrency; | |
|
| Fees associated with processing a bitcoin transaction and the speed at which bitcoin transactions are settled; and | |
|
| The availability and cost of funding and capital. | |
The Trust is not actively managed and does not and will not have any
strategy relating to the development of the Bitcoin network. Furthermore, the Sponsor cannot be certain as to the impact of the expansion
of its bitcoin holdings on the digital asset industry and the Bitcoin network. A decline in the popularity or acceptance of the Bitcoin
network would harm the value of the Trust.
**Due to the nature of private keys, bitcoin transactions are irrevocable
and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely
affect an investment in the Trust.**
Bitcoin transactions are not reversible. Once a transaction has been
signed with private keys, verified and recorded in a block that is added to the Bitcoin blockchain, an incorrect transfer of cryptocurrency,
such as bitcoin, or a theft of bitcoin generally will not be reversible, and the Trust may not be capable of seeking compensation for
any such transfer or theft. To the extent that the Trust is unable to successfully seek redress for such error or theft, such loss could
adversely affect an investment in the Trust.
The custody of the Trusts bitcoin is handled by the Bitcoin
Custodian. The Sponsor has evaluated the procedures and internal controls of the Trusts Custodian to safeguard the Trusts
bitcoin holdings. However, it is possible that, through computer or human error, or through theft or criminal action, the Trusts
bitcoin could be transferred from the Trusts account at the Bitcoin Custodian in incorrect amounts or to unauthorized third parties,
or to uncontrolled accounts. Alternatively, if the Bitcoin Custodians internal procedures and controls are inadequate to safeguard
the Trusts bitcoin holdings, and the Trusts private key(s) is (are) lost, destroyed or otherwise damaged or compromised
and no backup of the private key(s) is (are) accessible, the Trust will be unable to access its bitcoin, which could adversely affect
an investment in the Shares of the Trust. When used to sign transactions, the risk of private key theft is heightened as security measures
like encryption need to be reversed in order to access and use the private key. In addition, if the Trusts private key(s) is (are)
misappropriated and the Trusts bitcoin holdings are stolen, including from or by the Bitcoin Custodian, the Trust could lose some
or all of its bitcoin holdings, which could adversely impact an investment in the Shares of the Trust. Such events have occurred in connection
with digital assets in the past and should not be unexpected in the future. For example, in September 2014, the Chinese digital asset
platform Huobi announced that it sent bitcoin to the wrong customers.
**Security threats to the Trusts account with the Bitcoin
Custodian or Prime Execution Agent could result in the halting of Trust operations and a loss of Trust assets or damage to the reputation
of the Trust, each of which could result in a reduction in the price of the Shares.**
Security breaches, computer malware and computer hacking attacks have
been a prevalent concern in relation to digital assets. The Sponsor believes that the Trusts bitcoin held in the Trusts
account with the Bitcoin Custodian or Trading Balance held with the Prime Execution Agent will be an appealing target to hackers or malware
distributors seeking to destroy, damage or steal the Trusts bitcoin and will only become more appealing as the Trusts assets
grow. To the extent that the Trust, the Sponsor, the Bitcoin Custodian or Prime Execution Agent is unable to identify and mitigate or
stop new security threats or otherwise adapt to technological changes in the digital asset industry, the Trusts bitcoin may be
subject to theft, loss, destruction or other attack.
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The Sponsor has evaluated the security procedures in place for safeguarding
the Trusts bitcoin. Nevertheless, the security procedures cannot guarantee the prevention of any loss due to a security breach,
hack, software defect or act of God that may be borne by the Trust and the security procedures may not protect against all errors, software
flaws or other vulnerabilities in the Trusts technical infrastructure, which could result in theft, loss or damage of its assets.
The Sponsor does not control the Bitcoin Custodians or Prime
Execution Agents operations or their implementation of such security procedures and there can be no assurance that such security
procedures will actually work as designed or prove to be successful in safeguarding the Trusts assets against all possible sources
of theft, loss or damage. Assets not held in cold storage, such as assets held in the Trading Balance, may be more vulnerable to security
breach, hacking or loss than assets held in cold storage. Furthermore, assets held in a trading account, including the Trading Balance,
generally is held in hot storage on an omnibus, rather than segregated basis, which creates greater risk of loss. Even though bitcoin
is only moved into the Trading Balance in connection with and to the extent of purchases and sales of bitcoin by the Trust, there are
no policies that would limit the amount of bitcoin that can be held temporarily in the Trading Balance maintained by the Prime Execution
Agent. This could create greater risk of loss of the Trusts bitcoin, which could cause Shareholders to suffer losses.
The security procedures and operational infrastructure may be breached
due to the actions of outside parties, error or malfeasance of Sponsor personnel, the Bitcoin Custodian, Prime Execution Agent, or otherwise,
and, as a result, an unauthorized party may obtain access to the Trusts account with the Bitcoin Custodian, the private keys (and
therefore bitcoin) or other data of the Trust. Additionally, outside parties may attempt to fraudulently induce Sponsor personnel, the
Bitcoin Custodian, Prime Execution Agent, or the Trusts other service providers to disclose sensitive information in order to gain
access to the Trusts infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage
systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched
against a target, the Sponsor, the Bitcoin Custodian and/or other Trust service providers may be unable to anticipate these techniques
or implement adequate preventative measures.
An actual or perceived breach of the Trusts account with the
Bitcoin Custodian, Prime Execution Agent and/or other Trust service providers could harm the Trusts operations, result in partial
or total loss of the Trusts assets, damage the Trusts reputation and negatively affect the market perception of the effectiveness
of the Trust, all of which could in turn reduce demand for the Shares, resulting in a reduction in the price of the Shares. The Trust
may also cease operations, suspend redemptions or suffer a reduction in assets, the occurrence of which could similarly result in a reduction
in the price of the Shares.
**The value of the Shares depends on the development and acceptance
of the Bitcoin network. The slowing or stopping of the development or acceptance of the Bitcoin network may adversely affect an investment
in the Trust.**
The Bitcoin network, including the cryptographic and algorithmic protocols
associated with the operation of the Bitcoin blockchain, has only been in existence since 2009, and bitcoin markets have a limited performance
record, making them part of a new and rapidly evolving industry that is subject to a variety of factors that are difficult to evaluate.
The growth of the digital asset industry in general, and the Bitcoin network in particular, is subject to a high degree of uncertainty.
For example, the following are some of the risks that could materially adversely affect the value of the Shares:
|
| As the Bitcoin network continues to develop and grow, certain technical issues might be uncovered, and the troubleshooting and resolution
of such issues requires the attention and efforts of Bitcoins global development community. | |
|
| In August 2017, the Bitcoin network underwent a hard fork that resulted in the creation of a new digital asset network called Bitcoin
Cash. This hard fork was contentious, and as a result some users of the Bitcoin Cash network may harbor ill will toward the Bitcoin network.
These users may attempt to negatively impact the use or adoption of the Bitcoin network. | |
|
| Also in August 2017, the Bitcoin Network was upgraded with a technical feature known as Segregated Witness with the
promise of increasing the number of transactions per second that can be handled on-chain and enabling so-called second layer solutions,
such as the Lightning Network or payment channels which continue to be developed, that increase transaction throughput by processing certain
transactions outside the main Bitcoin blockchain. These upgrades may fail to achieve the expected benefits or widespread adoption, leading
to a decline in public support for, and the price of, bitcoin. | |
|
| It is possible that some of the largest bitcoin wallets are controlled by the same person or entity, or that other persons or entities
control multiple wallets that collectively hold a significant number of bitcoin, even if each wallet individually only holds a small amount.
As a result of this potential concentration of ownership, large sales by such holders may have an adverse effect on the market price of
bitcoin. | |
There is no assurance that the Bitcoin network, or the service providers
necessary to accommodate it, will continue in existence or grow. Furthermore, there is no assurance that the availability of and access
to digital asset service providers will not be negatively affected by government regulation or supply and demand of bitcoin.
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**A disruption of the Internet may affect the operation of the
Bitcoin network, which may adversely affect the bitcoin industry and an investment in the Trust.**
The Bitcoin network relies on the internet. A significant disruption
of internet connectivity (*i.e.*, one that affects large numbers of users or geographic regions) could disrupt the Bitcoin networks
functionality and operations until the disruption is resolved. A disruption of the internet could adversely affect an investment in the
Trust or the ability of the Trust to operate.
**Potential amendments to the Bitcoin networks protocols
and software could, if accepted and authorized by the Bitcoin network community, adversely affect an investment in the Trust.**
The Bitcoin network uses a cryptographic protocol to govern the interactions
within the Bitcoin network. A loose community known as the core developers has evolved to informally manage the source code for the protocol.
Membership in the community of core developers evolve over time, largely based on self-determined participation in the resource section
dedicated to bitcoin on Github.com. The core developers can propose amendments to the Bitcoin networks source code that, if accepted
by miners and users, could alter the protocols and software of the Bitcoin network and the properties of bitcoin. These alterations would
occur through software upgrades and could potentially include changes to the irreversibility of transactions and limitations on the mining
of new bitcoin, which could undermine the appeal and market value of bitcoin. Alternatively, software upgrades and other changes to the
protocols of the Bitcoin network could fail to work as intended or could introduce bugs, security risks, or otherwise adversely affect,
the speed, security, usability, or value of the Bitcoin network or bitcoins. As a result, the Bitcoin network could be subject to new
protocols and software in the future that may adversely affect an investment in the Trust.
**The open-source structure of the Bitcoin network protocol means
that the core developers and other contributors are generally not directly compensated for their contributions in maintaining and developing
the Bitcoin network protocol. A failure to properly monitor and upgrade the Bitcoin network protocol could damage the Bitcoin network
and an investment in the Trust.**
The Bitcoin network operates based on an open-source protocol maintained
by the core developers and other contributors, largely on the GitHub resource section dedicated to bitcoin development. As the Bitcoin
network protocol is not sold or made available subject to licensing or subscription fees and its use does not generate revenues for its
development team, the core developers are generally not compensated for maintaining and updating the source code for the Bitcoin network
protocol. Consequently, there is a lack of financial incentive for developers to maintain or develop the Bitcoin network and the core
developers may lack the resources to adequately address emerging issues with the Bitcoin network protocol. Although the Bitcoin network
is currently supported by the core developers, there can be no guarantee that such support will continue or be sufficient in the future.
For example, there have been recent reports that the number of core developers who have the authority to make amendments to the Bitcoin
networks source code in the GitHub repository is relatively small, although there are believed to be a larger number of developers
who contribute to the overall development of the source code of the Bitcoin network. Further, a bad actor could also attempt to interfere
with the operation of the Bitcoin network by attempting to, or actually, influencing a core developer in a negative way or with malintent.
Alternatively, some developers may be funded by entities whose interests are at odds with other participants in the Bitcoin network. To
the extent that material issues arise with the Bitcoin network protocol and the core developers and open-source contributors are unable
to address the issues adequately or in a timely manner, the Bitcoin network and an investment in the Trust may be adversely affected.
**A temporary or permanent fork of the Bitcoin Blockchain
could adversely affect an investment in the Trust.**
Bitcoin software is open source. Any user can download the software,
modify it and then propose that the core developers, users and miners adopt the modification. When a modification is introduced and a
substantial majority of users and miners consent to the modification, the change is implemented and the Bitcoin network remains uninterrupted.
However, if less than a substantial majority of users and miners consent to the proposed modification, and the modification is nonetheless
implemented by some users and miners and the modification is not compatible with the software prior to its modification, the consequence
would be what is known as a fork (*i.e.*, split) of the Bitcoin network (and the blockchain), with one
version running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence
of two (or more) versions of the Bitcoin network running in parallel, but with each versions bitcoin lacking interchangeability.
Such a fork in the Bitcoin blockchain typically would be addressed by community-led efforts to merge the forked Bitcoin blockchains, and
several prior forks have been so merged. Since the Bitcoin networks inception, modifications to the Bitcoin network have generally
been accepted by the majority of users and miners, ensuring that the Bitcoin network remains a coherent economic system and the focal
point of the majority of developer activity. There is no assurance, however, that this will continue to be the case, and if it is not,
then the price of bitcoin could be negatively affected. The original blockchain and the forked blockchain could potentially compete with
each other for users, developers, and miners, leading to a loss of these for the original blockchain. A fork of any kind could adversely
affect an investment in the Trust or the ability of the Trust to operate and the Trusts procedures may be inadequate to address
the effects of a fork.
Additionally, a fork could be introduced by an unintentional, unanticipated
software flaw in the multiple versions of otherwise compatible software users run. It is also possible that, in a future accidental or
unintentional fork, a substantial number of users and miners could adopt an incompatible version of the digital asset while resisting
community-led efforts to merge the two blockchains, which could cause bitcoin to decline in value. Further, a hard fork could lead to
new security concerns.
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Forks have occurred already to the Bitcoin network. For example, in
August 2017, Bitcoin forked into Bitcoin and a new digital asset, Bitcoin Cash, as a result of a several-year dispute over
how to increase the rate of transactions that the Bitcoin network can process. There have been other contentious disputes over changes
to the Bitcoin networks source code, though these have not led to hard forks. For example, the predominant software implementation
used to access the Bitcoin network is Bitcoin Core. The October 2025 release of the updated Bitcoin Core client (version 30) removed a
long-standing limit on the inclusion of non-transaction-related data in blocks, the effect of which is to permit larger amounts of arbitrary
data to be embedded in transactions. This change has prompted debate within the bitcoin community. Because the change is backwards-compatible,
rather than a hard fork, certain previous versions of the Bitcoin Core client remain operable, and it remains interoperable with other
clients, such as Bitcoin Knots. Some participants have expressed concerns that such changes could facilitate the inclusion of illegal
or non-transaction-related content on the Bitcoin blockchain or could introduce new or unknown software vulnerabilities. In response,
certain miners and users have reportedly adopted alternative client software implementations to access the Bitcoin network, such as Bitcoin
Knots. There is a risk that unresolved divisions could lead to community fragmentation which, if they grew sufficiently severe and were
not resolved, eventually a future Bitcoin network hard fork could occur, which may adversely affect the security or stability of the Bitcoin
network (such as if miners leave the original Bitcoin network for the forked network), reduce or impede the adoption of bitcoin overall,
or cause bitcoin or the Shares to lose value.
Forks may also occur as a network communitys response to a significant
security breach. For example, in July 2016, Ethereum forked into Ethereum and a new digital asset, Ethereum Classic, as
a result of the Ethereum network communitys response to a significant security breach in which an anonymous hacker exploited a
smart contract running on the Ethereum network to syphon approximately $60 million of ETH held by The DAO, a distributed autonomous organization,
into a segregated account. In response to the hack, most participants in the Ethereum community elected to adopt a fork
that effectively reversed the hack. However, a minority of users continued to develop the original blockchain, now referred to as Ethereum
Classic with the digital asset on that blockchain now referred to as Ethereum Classic, or ETC. ETC now trades on several digital
asset platforms. A fork may also occur as a result of an unintentional or unanticipated software flaw in the various versions of otherwise
compatible software that users run. Such a fork could lead to users and miners abandoning the digital asset with the flawed software.
It is possible, however, that a substantial number of users and miners could adopt an incompatible version of the digital asset while
resisting community-led efforts to merge the two chains. This could result in a permanent fork, as in the case of Ethereum and Ethereum
Classic.
In addition, many developers have previously initiated hard forks in
the Blockchain to launch new digital assets, such as Bitcoin Gold and Bitcoin Diamond. To the extent such digital assets compete with
bitcoin, such competition could impact demand for bitcoin and could adversely impact the value of the Shares.
Furthermore, a hard fork can lead to new security concerns. For example,
when the Ethereum and Ethereum Classic networks split in July 2016, replay attacks, in which transactions from one network were rebroadcast
to nefarious effect on the other network, plagued Ethereum platforms through at least October 2016. An Ethereum platform announced in
July 2016 that it had lost 40,000 Ethereum Classic, worth about $100,000 at that time, as a result of replay attacks. Similar replay attack
concerns occurred in connection with the Bitcoin Cash and Bitcoin Satoshis Vision networks split in November 2018. Another possible
result of a hard fork is an inherent decrease in the level of security due to significant amounts of mining power remaining on one network
or migrating instead to the new forked network. After a hard fork, it may become easier for an individual miner or mining pools
hashing power to exceed 50% of the processing power of a digital asset network that retained or attracted less mining power, thereby making
digital asset networks that rely on proof-of-work more susceptible to attack.
As another example of the effects of hard forks on digital assets,
on September 15, 2022, the Ethereum Network completed its Merge, moving from a proof-of-work model to a proof-of-stake model. Ethereum
proof-of-work miners who disagreed with the new consensus mechanism forked the network which resulted in the Ethereum proof-of-work network.
Ethereum proof-of-work network was driven by a small but vocal group of miners who wished to hold onto revenue as Ethereum switched to
proof-of-stake. The vast majority of token holder votes preferred the new proof-of-stake consensus method. There was no material impact
on the Ethereum network as a result of the fork. All ether holders were airdropped Ethereum proof-of-work network tokens as a result of
the hard fork. However, not all liquidity providers were able to trade the new token and the Ethereum proof-of-work network token almost
immediately lost most of its value.
A future fork in the Bitcoin network could adversely affect the value
of the Shares or the ability of the Trust to operate.
In addition to forks, a digital asset may become subject to a similar
occurrence known as an airdrop. In an airdrop, the promotors of a new digital asset announce to holders of another digital
asset that such holders will be entitled to claim a certain amount of the new digital asset for free, based on the fact that they hold
such other digital asset. For example, in March 2017 the promoters of Stellar Lumens announced that anyone that owned bitcoin as of June
26, 2017 could claim, until August 27, 2017, a certain amount of Stellar Lumens. Airdrops could create operational security, legal or
regulatory, or other risks for the Trust, the Sponsor, the Bitcoin Custodian, Authorized Participants, or other entities. Typically, the
holder of bitcoin has no discretion in a hard fork; it merely has the right to claim the new forked asset on a pro rata basis while it
continues to hold the same number of bitcoin. If such a transaction does occur, the Trust will, at the direction of the Sponsor, direct
the Bitcoin Custodian to irrevocably and permanently abandon, for no consideration, the new cryptocurrency or digital asset as soon as
possible.
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**In the event of a hard fork of the Bitcoin network, the Sponsor
will use its discretion to determine which network should be considered the appropriate network for the Trusts purposes, and in
doing so may adversely affect the value of the Shares.**
In the event of a hard fork of the Bitcoin network, the Sponsor will
use its discretion to determine, in good faith, which peer-to-peer network, among a group of incompatible forks of the Bitcoin network,
is generally accepted as the Bitcoin network and should therefore be considered the appropriate network for the Trusts purposes.
The Sponsor will base its determination on a variety of then relevant factors, including, but not limited to, the Sponsors beliefs
regarding expectations of the core developers of Bitcoin, users, service providers, businesses, miners and other constituencies, as well
as the actual continued acceptance of, mining power on, and community engagement with, the Bitcoin network. However, even after taking
these factors into consideration, there is no guarantee that the Sponsors determination as to the most appropriate network for
the Trusts purposes will ultimately become the most valuable fork, which may adversely affect the value of the Shares. The Sponsor
may also disagree with Shareholders, the Bitcoin Custodian, other service providers and security vendors on what is generally accepted
as Bitcoin and should therefore be considered bitcoin for the Trusts purposes, which may also adversely affect the
value of the Shares.
**The Bitcoin Blockchain could be vulnerable to a 51% attack,
which could adversely affect an investment in the Trust or the ability of the Trust to operate.**
If the majority of the processing power dedicated to mining on the
Bitcoin network is controlled by a bad actor or actors (often referred to as a 51% attack), such persons may be able to
alter the Bitcoin blockchain on which the Bitcoin network and bitcoin transactions rely. This could occur if the bad actor(s) were to
construct fraudulent blocks or prevent certain transactions from completing in a timely manner, or at all. It could be possible for the
malicious actor to control, exclude or modify the ordering of transactions, though it could not generate new bitcoin or transactions.
Further, a bad actor could double-spend its own bitcoin (*i.e.*, spend the same bitcoin in more than one transaction)
and prevent the confirmation of other users transactions for so long as it maintained control. If the Bitcoin community did not
reject the fraudulent blocks as malicious or to the extent that such bad actor did not yield its control of processing power, reversing
any changes made to the Bitcoin blockchain may be impossible. The possible crossing of this threshold indicates a greater risk that a
single mining pool or coordinate group of pools could exert authority over the validation of bitcoin transactions. If the feasibility
of a bad actor gaining control of the processing power on the Bitcoin network increases, there may be a negative effect on an investment
in the Trust.
Although there are no known reports of malicious parties taking control
of the Bitcoin network, it is believed that certain mining pools may have exceeded the 50% threshold on the Bitcoin network on a temporary
basis. The possible crossing of the 50% threshold indicates a greater risk that a single mining pool could exert authority over the validation
of Bitcoin transactions, and this risk is heightened if over 50% of the processing power on the network falls within the jurisdiction
of a single governmental authority. If network participants, including the core developers and the administrators of mining pools, do
not act to ensure greater decentralization of Bitcoin mining processing power, the feasibility of a malicious actor obtaining control
of the processing power on the Bitcoin network will increase, which may adversely affect the value of the Shares.
The 51% threshold is the level which would almost guarantee a malicious
actors success. However, such attacks could in theory occur at thresholds lower than 51% of the available hash power. In addition,
a malicious actor may also obtain control over the Bitcoin network through its influence over core developers by gaining direct control
over a core developer or an otherwise influential programmer. To the extent that the Bitcoin ecosystem does not grow, the possibility
that a malicious actor may be able to obtain control of the processing power or development control on the Bitcoin network in this manner
will remain heightened.
If such an attack occurred, even outside of the Bitcoin blockchain,
investor sentiment in the infrastructure of digital assets generally could be adversely affected, effecting demand and therefore ultimately
the price of a digital asset such as bitcoin, thus adversely impacting the value of the Shares.
**Transacting in bitcoin is subject to illicit financing risk.**
Although transaction details of peer-to-peer transactions are recorded
on the Bitcoin network, a buyer or seller of bitcoin on a peer-to-peer basis directly on the Bitcoin network may never know to whom the
public key belongs or the true identity of the party with whom it is transacting. Public key addresses are randomized sequences of alphanumeric
characters that, standing alone, do not provide sufficient information to identify users. In addition, certain technologies - such as
bitcoin trading platforms commonly referred to as mixers - may obscure the origin or chain of custody of bitcoin. The opaque
nature of the market poses asset verification challenges for market participants, regulators and auditors and gives rise to an increased
risk of manipulation and fraud, including the potential for Ponzi schemes, bucket shops and pump and dump schemes. Bitcoin in the past
has been used to facilitate illicit activities. If bitcoin (or other digital assets) were used to facilitate illicit activities, businesses
that facilitate transactions in bitcoin or other digital assets could be at increased risk of potential criminal or civil lawsuits, or
of having banking or other services cut off, and such digital asset could be removed from digital asset platforms. Any of the aforementioned
occurrences could adversely affect the price of the relevant digital asset, including bitcoin, the attractiveness of the respective blockchain
network such as the Bitcoin network and an investment in the Shares. If the Trust, the Sponsor or the Trustee were to transact with a
sanctioned entity, the Trust, the Sponsor or the Trustee would be at risk of investigation, potential criminal or civil lawsuits or liability,
have their assets frozen, lose access to banking services or services provided by other service providers, or suffer disruptions to their
operations, any of which could negatively affect the Trusts ability to operate or cause losses in value of the Shares.
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**If miners expend less processing power on the Bitcoin network,
it could increase the likelihood of a malicious actor obtaining control.**
Miners ceasing operations would reduce the collective processing power
on the Bitcoin network, which would adversely affect the confirmation process for transactions (*i.e.*, temporarily decreasing the
speed at which blocks are added to the Bitcoin blockchain until the next scheduled adjustment in difficulty for block solutions). If a
reduction in processing power occurs, the Bitcoin network may be more vulnerable to a malicious actor obtaining control in excess of fifty
percent (50%) of the processing power on the Bitcoin network. As a result, it may be possible for a bad actor to manipulate the Bitcoin
blockchain and hinder transactions. Any reduction in confidence in the confirmation process or processing power of the Bitcoin network
may adversely affect an investment in the Trust.
**Blockchain technologies are based on the theoretical conjectures
as to the impossibility of solving certain cryptographical puzzles quickly. These premises may be incorrect or may become incorrect due
to technological advances.**
Blockchain technologies are premised on theoretical conjectures as
to the impossibility, in practice, of solving certain mathematical problems quickly. Those conjectures remain unproven, however, and mathematical
or technological advances could conceivably prove them to be incorrect. Blockchain technology companies may also be negatively affected
by cryptography or other technological advances, such as the development of quantum computers with significantly more power than computers
presently available, that undermine or vitiate the cryptographic consensus mechanism underpinning the Bitcoin blockchain and other distributed
ledger protocols. If either of these events were to happen, markets that rely on blockchain technologies, such as the Bitcoin network,
could quickly collapse, and an investment in the Trust may be adversely affected.
**The price of bitcoin on the bitcoin market has exhibited periods
of extreme volatility, which could have a negative impact on the performance of the Trust.**
The price of bitcoin as determined by the bitcoin market has experienced
periods of extreme volatility and may be influenced by a wide variety of factors. Speculators and investors who seek to profit from trading
and holding bitcoin generate a significant portion of bitcoin demand. Such speculation regarding the potential future appreciation in
the value of bitcoin may cause the price of bitcoin to increase. Conversely, a decrease in demand for or speculative interest regarding
bitcoin may cause the price to decline. The volatility of the price of bitcoin, particularly arising from speculative activity, may have
a negative impact on the performance of the Trust.
**The price of bitcoin may become closely correlated with other
asset classes**
Returns from investing in bitcoin have at times diverged from and/or
have not been correlated with those associated with other asset classes, but there can be no assurance that there will be any such divergence,
either generally or with respect to any particular asset class, or that price movements will not be correlated. In addition, there is
no assurance that bitcoin will maintain its value in the long, intermediate, short, or any other term. In the event that the price of
bitcoin declines, the value of the Shares is likely to decline proportionately.
**Prices of bitcoin may be affected due to stablecoins, the activities
of stablecoin issuers and their regulatory treatment**
While the Trust does not invest in stablecoins, such
as those digital assets that are pegged to the U.S. dollar and holders expect to receive one U.S. dollar in exchange for the stablecoin,
it may nonetheless be exposed to risks that stablecoins pose for the bitcoin market and other digital asset markets. Stablecoins are digital
assets designed to have a stable value over time as compared to typically volatile digital assets. Although the prices of stablecoins
are intended to be stable, their market value may fluctuate. This volatility has in the past indirectly or apparently impacted the price
of bitcoin. Stablecoins are a relatively new phenomenon whereby assets held in stablecoins has increased significantly over the past few
years, such that it is impossible to know all of the risks that they could pose to participants in the bitcoin market. In addition, some
have argued that certain stablecoins are improperly issued without sufficient backing in a way that, when the stablecoin is used to pay
for bitcoin, could cause artificial rather than genuine demand for bitcoin, which may artificially inflate the price of bitcoin. Some
issuers of stablecoins may not be vetted or regulated, and it is not always possible to discern whether there is sufficient backing for
a given stablecoin or other mechanisms to maintain a stable price for the asset. In addition, it is not possible to eliminate the possibility
that some stablecoins are involved in illicit activities. Given the foundational role that stablecoins play in global digital asset markets,
their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the market for bitcoin. Because
a large portion of the digital asset market trading volume occurs in stablecoins, there is a risk that actual or perceived loss of value
or backing could disrupt the digital asset market, including via a disorderly de-pegging or a run on stablecoins could lead to dramatic
market volatility in digital assets more broadly. Perceived or actual volatility in stablecoins, operational issues with stablecoins (for
example, technical issues that prevent settlement), concerns about the sufficiency of any reserves that support stablecoins or potential
manipulative activity when unbacked stablecoins are used to pay for other digital assets (including bitcoin), or regulatory concerns or
actions about stablecoin issuers or intermediaries, such as platforms, that support stablecoins, could impact both the digital assets
market and individuals willingness to trade on trading venues that rely on stablecoins, reduce liquidity in the bitcoin market,
and affect the value of bitcoin, and in turn impact an investment in the Shares.
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**Currently, there is relatively small use of bitcoin in the retail
and commercial marketplace in comparison to relatively large use by speculators and those perceiving bitcoin as a store of value, thus
contributing to price volatility that could adversely affect an investment in the Trust.**
Certain merchants and major retail and commercial businesses have only
recently begun accepting bitcoin and the Bitcoin network as a means of payment for goods and services. Consumer use of bitcoin to pay
such retail and commercial outlets, however, remains limited. Yet, market speculators and investors seeking to profit from the short-
or long-term holding of bitcoin generate a significant portion of demand for bitcoin, which can contribute to price volatility, which
in turn can make bitcoin less attractive to merchants and commercial parties as a means of payment. A lack of expansion by bitcoin into
retail and commercial markets or a contraction of such use may result in a reduction in the price of bitcoin, which could adversely affect
an investment in the Trust.
**Bitcoin platforms on which bitcoin trades are relatively new
and, in some cases, unregulated, and, therefore, may be more exposed to fraud, manipulation and security breaches than established, regulated
platforms for other financial assets or instruments, which could have a negative impact on the performance of the Trust.**
****
**Risk of Fraud and Market Manipulation.**
****
Over the past several years, a number of bitcoin platforms
have been closed or faced issues due to fraud, manipulation, failure, security breaches or governmental regulations. Bitcoin platforms
may be more exposed to the risk of market manipulation than exchanges for more traditional assets. Some bitcoin platforms are not subject
to direct regulatory oversight, and some bitcoin platforms that are subject to such oversight typically must comply with minimum net worth,
cybersecurity, and anti-money laundering requirements, but are not typically required to protect customers or their markets to the same
extent that regulated securities exchanges or futures exchanges are required to do so. Tools to detect and deter fraudulent or manipulative
trading activities such as market manipulation, front-running of trades, and wash-trading may not be available to or employed by digital
asset platforms or may not exist at all. The SEC has identified possible sources of fraud and manipulation in the bitcoin market generally,
including, among others (1) wash trading; (2) persons with a dominant position in bitcoin manipulating bitcoin pricing;
(3) hacking of the Bitcoin network and trading platforms; (4) malicious control of the Bitcoin network; (5) trading based on material,
non-public information (for example, plans of market participants to significantly increase or decrease their holdings in bitcoin, new
sources of demand for bitcoin) or based on the dissemination of false and misleading information; (6) manipulative activity involving
stablecoins; and (7) fraud and manipulation at bitcoin trading platforms. The effect of potential market manipulation, front-running,
wash-trading, and other fraudulent or manipulative trading practices may inflate the volumes actually present in crypto markets and/or
cause distortions in price, which could adversely affect the Trust or Shares. Further, the closure or temporary shutdown of bitcoin platforms
due to fraud, manipulation business failure, hackers or malware, or government-mandated regulation may reduce confidence in the Bitcoin
network and can slow down the mass adoption of bitcoin. Further, such bitcoin platform failures or that of any other major component of
the overall bitcoin ecosystem can have an adverse effect on bitcoin markets and the price of bitcoin and could therefore have a negative
impact on the performance of the Trust.
**Spot markets may be exposed to wash trading.**
****
Spot markets on which bitcoin trades may be susceptible
to wash trading. Wash trading occurs when offsetting trades are entered into for other than bona fide reasons, such as the desire to
inflate reported trading volumes. Wash trading may be motivated by non-economic reasons, such as a desire for increased visibility
on popular websites that monitor markets for digital assets so as to improve their attractiveness to investors who look for maximum
liquidity, or it may be motivated by the ability to attract listing fees from token issuers who seek the most liquid and high-volume
exchanges on which to list their coins. Results of wash trading may include unexpected obstacles to trade and erroneous investment
decisions based on false information. Any actual or perceived false trading in the digital asset markets, and any other fraudulent
or manipulative acts and practices, could adversely affect the value of bitcoin and/or negatively affect the market perception of
bitcoin. To the extent that wash trading either occurs or appears to occur in spot markets on which bitcoin trades, investors may
develop negative perceptions about bitcoin and the digital assets industry more broadly, which could adversely impact the price of
bitcoin and, therefore, the price of Shares. Wash trading also may place more legitimate digital asset platforms at a relative
competitive disadvantage.
| | 36 | | |
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**Price Volatility.**
****
Many bitcoin platforms lack certain safeguards established
by more traditional exchanges to enhance the stability of trading on the platform, such as measures designed to prevent sudden drops in
value of items traded on the exchange (*i.e.*, flash crashes). As a result, the prices of cryptocurrencies, including
bitcoin, on exchanges may be subject to larger and more frequent sudden declines than assets traded on more traditional platforms.
**Sales of new bitcoin may cause the price of bitcoin to decline,
which could negatively affect an investment in the Trust.**
****
Newly created bitcoin (newly mined bitcoin) are generated
through a process referred to as mining. If entities engaged in bitcoin mining choose not to hold the newly mined bitcoin,
and, instead, make them available for sale, there can be downward pressure on the price of bitcoin. A bitcoin mining operation may be
more likely to sell a higher percentage of its newly created bitcoin, and more rapidly so, if it is operating at a low profit margin,
thus reducing the price of bitcoin. Lower bitcoin prices may result in further tightening of profit margins for miners and decreasing
profitability, thereby potentially causing even further selling pressure. Diminishing profit margins and increasing sales of newly mined
bitcoin could result in a reduction in the price of bitcoin, which could adversely impact an investment in the Shares.
**Digital asset networks face significant scaling challenges and
efforts to increase the volume of transactions may not be successful.**
****
Many digital asset networks face significant scaling challenges due
to the fact that public blockchains generally face a tradeoff between security and scalability. One means through which public blockchains
achieve security is decentralization, meaning that no intermediary is responsible for securing and maintaining these systems. For example,
a greater degree of decentralization generally means a given digital asset network is less susceptible to manipulation or capture. Achieving
decentralization may mean that every single node on a given digital asset network is responsible for securing the system by processing
every transaction and maintaining a copy of the entire state of the network. However, this may involve tradeoffs from an efficiency perspective,
impose constraints on throughput or have other consequences (see the next risk factor regarding the Bitcoin networks decentralized
governance structure).
In an effort to increase the volume of transactions that can be processed
on a given digital asset network, many digital assets are being upgraded with various features to increase the speed and throughput of
digital asset transactions. In August 2017, the Bitcoin network was upgraded with a technical feature known as Segregated Witness
with the promise of increasing the number of transactions per second that can be handled on-chain and enabling so-called second layer
solutions, such as the Lightning Network or payment channels, that increase transaction throughput by processing certain transactions
outside the main Bitcoin blockchain. However, this upgrade may fail to achieve the expected benefits or widespread adoption.
If increases in throughput on the Bitcoin network lag behind growth
in usage of bitcoin, average fees and settlement times may increase considerably. For example, the Bitcoin network has been, at times,
subject to congestion, which has led to increased transaction fees. Increased fees and decreased settlement speeds could preclude certain
uses for bitcoin (*e.g.*, micropayments), and could reduce demand for, and the price of, bitcoin, which could adversely impact the
value of the Shares.
Many developers are actively researching and testing scalability solutions
for public blockchains that do not necessarily result in lower levels of security or decentralization. However, there is no guarantee
that any of the mechanisms in place or being explored for increasing the scale of settlement of the Bitcoin network transactions will
be effective, or how long these mechanisms will take to become effective, which could adversely impact the value of the Shares.
**The Bitcoin networks decentralized governance structure
may negatively affect its ability to grow and respond to challenges.**
****
The governance of decentralized networks, such as the Bitcoin network,
is by voluntary consensus and open competition. In other words, the Bitcoin network has no central decision-making body or clear manner
in which participants can come to an agreement other than through voluntary, widespread consensus. As a result, a lack of widespread consensus
in the governance of the Bitcoin network may adversely affect the networks utility and ability to adapt and face challenges, including
technical and scaling challenges. Historically the development of the source code of the Bitcoin network has been overseen by the core
developers. However, the Bitcoin network would cease to operate successfully without both miners and users, and the core developers cannot
formally compel them to adopt the changes to the source code desired by core developers, or to continue to render services or participate
in the Bitcoin network. As a general matter, the governance of the Bitcoin network generally depends on most of members of the Bitcoin
community ultimately reaching some form of voluntary agreement on significant changes.
The decentralized governance of the Bitcoin network may make it difficult
to find or implement solutions or marshal sufficient effort to overcome existing or future problems, especially protracted ones requiring
substantial directed effort and resource commitment over a long period of time, such as scaling challenges. Deeply held differences of
the opinion have led to forks in the past, such as between Bitcoin and Bitcoin Cash, and could lead to additional forks in the future,
with potentially divisive effects. The Bitcoin networks failure to overcome governance challenges could exacerbate problems experienced
by the network or cause the network to fail to meet the needs of its users, and could cause users, miners, and developer talent to abandon
the Bitcoin network or to choose competing blockchain protocols, or lead to a drop in speculative interest, which could cause the value
of bitcoin to decline. If the Bitcoin community is unable to reach consensus in the future, it could have adverse consequences for the
Bitcoin network or lead to a fork, which could affect the value of bitcoin.
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| | |
**New competing digital assets may pose a challenge to bitcoins
current market position, resulting in a reduction in demand for bitcoin, which could have a negative impact on the price of bitcoin and
may have a negative impact on the performance of the Trust.**
****
The Bitcoin network and bitcoin, as an asset, hold a first-to-market
advantage over other digital assets. This first-to-market advantage has contributed to the Bitcoin network evolving into the most well-developed
network of any digital asset. The Bitcoin network enjoys the largest user base and has more mining power in use to secure the Bitcoin
blockchain than any other digital asset. Having a large mining network could provide users confidence regarding the security and long-term
stability of the Bitcoin network. This in turn could create a domino effect that inures to the benefit of the Bitcoin network - namely,
the advantage of more users and miners makes a digital asset more secure, which potentially makes it more attractive to new users and
miners, resulting in a network effect that potentially strengthens the first-to-market advantage. However, despite the first-mover advantage
of the Bitcoin network over other digital assets, it is possible that real or perceived shortcomings in the Bitcoin network, or technological,
regulatory or other developments, could result in a decline in popularity and acceptance of bitcoin and the Bitcoin network, and other
digital currencies and trading systems could become more widely accepted and used than the Bitcoin network.
In addition, leading technologies and/or payments companies, from Meta
Platforms, Inc. (formerly known as Facebook) to Paypal, have explored plans, enacted plans and/or introduced various digital asset and
electronic payments initiatives. Such initiatives could adversely affect the value of bitcoin and digital assets, in particular where
technical limitations or perceived disadvantages of bitcoin or the Bitcoin network are compared to such other initiatives. These could
include operational cost exceeding the award for solving blocks or transaction fees, and increased transaction fees which may adversely
affect the usage of the Bitcoin network.
Competition from the emergence or growth of alternative digital assets
and smart contracts platforms, such as Ethereum, Solana, Avalanche, Polkadot, or Cardano, could have a negative impact on the demand for,
and price of, bitcoin and thereby adversely affect the value of the Shares.
**The Trust and the Sponsor face competition from competing products.**
****
The Trust and the Sponsor face competition with respect to the creation
of competing exchange-traded bitcoin products. The Trust, could fail to acquire substantial assets, initially or at all. The Trusts
competitors may also charge a substantially lower fee than the Sponsors Fee in order to achieve initial market acceptance and scale.
Accordingly, the Sponsors competitors may commercialize a competing product more rapidly or effectively than the Sponsor is able
to, which could adversely affect the Sponsors competitive position and the likelihood that the Trust will achieve initial market
acceptance and could have a detrimental effect on the scale and sustainability of the Trust. If the Trust fails to achieve sufficient
scale, approximately $450 million in assets or more, due to competition, limited interest or otherwise, the Sponsor may have difficulty
in covering the costs associated with launching and maintaining the Trust and such shortfalls could impact the Sponsors ability
to properly invest in robust ongoing operations and controls of the Trust to minimize the risk of operating events, errors, or other forms
of losses to the Shareholders. In addition, the Trust may also fail to attract adequate liquidity in the secondary market due to such
competition, resulting in a sub-standard number of Authorized Participants willing to make a market in the Shares, which in turn could
result in a significant premium or discount in the Shares for extended periods and the Trusts failure to reflect the performance
of the price of bitcoin.
**Competition from central bank digital currencies (CBDCs)
and other initiatives could adversely affect the value of bitcoin and other digital assets.**
****
Central banks in certain countries have introduced digital forms of
legal tender (CBDCs). Research suggests over 100 countries are exploring CBDCs. Whether or not they incorporate blockchain or similar
technology, CBDCs, as legal tender in the issuing jurisdiction, could have an advantage in competing with, or replace, bitcoin and other
cryptocurrencies as a medium of exchange or store of value. Central banks and other governmental entities have also announced cooperative
initiatives and consortia with private sector entities, with the goal of leveraging blockchain and other technology to reduce friction
in cross-border and interbank payments and settlement, and commercial banks and other financial institutions have also recently announced
a number of initiatives of their own to incorporate new technologies, including blockchain and similar technologies, into their payments
and settlement activities, which could compete with, or reduce the demand for, bitcoin. As a result, the value of bitcoin could decrease,
which could adversely affect an investment in the Trust.
| | 38 | | |
| | |
**The scheduled mining of additional bitcoin and their subsequent
sale may cause the price of bitcoin to decline, which could negatively affect an investment in the Trust.**
****
The Bitcoin network is designed to periodically reduce the fixed award
given to miners for solving new blocks (the block reward), most recently in April 2024, when the block reward reduced from
6.25 to 3.125 bitcoin. The next such event, as referred to as a halving event, is anticipated to occur at some point between
March 2028 to May 2028. As the block reward continues to decrease over time, the mining incentive structure may transition to a higher
reliance on transaction confirmation fees in order to incentivize miners to continue to dedicate processing power to the blockchain. If
transaction confirmation fees become too high, the marketplace may be reluctant to use bitcoin. Increased transaction fees may motivate
market participants, such as merchants or commercial institutions, to switch from bitcoin to another digital asset or back to fiat currency
as their preferred medium of exchange. Decreased demand for bitcoin may adversely affect its price, which may adversely affect an investment
in the Trust.
To the extent that any miners cease to record transactions that do
not include the payment of a transaction fee in mined blocks or do not record a transaction because the transaction fee is too low, such
transactions will not be recorded on the Bitcoin blockchain until a block is mined by a miner who does not require the payment of transaction
fees or is willing to accept a lower fee. Also, some miners have financed the acquisition of mining equipment or the development or construction
of infrastructure to perform mining activities by borrowing. If such miners experience financial difficulties and are unable to pay back
their borrowings, their mining capacity could become unavailable to the Bitcoin network, which could conceivably result in disruptions
in recording transactions on the Bitcoin network. Any widespread delays or disruptions in the recording of transactions could result in
a loss of confidence in the Bitcoin network and disrupt transactions with Authorized Participants, bitcoin more broadly or otherwise adversely
impact the value of Shares.
Ultimately, if the awards of new bitcoin for solving blocks declines
and transaction fees for recording transactions are not sufficiently high to exceed the costs of mining, miners may operate at a loss
or cease operations. If the award does not exceed the costs of mining in the long-term, miners may have to cease operations entirely.
If miners cease their operations, this could have a negative impact on the Bitcoin network and could adversely affect the value of the
bitcoin held by the Trust.
**Miners could act in collusion to raise transaction fees, which
may adversely affect the usage of the Bitcoin network.**
****
Bitcoin miners collect fees for each transaction they confirm. Miners
validate unconfirmed transactions by adding the previously unconfirmed transactions to new blocks in the blockchain. Miners are not forced
to confirm any specific transaction, but they are economically incentivized to confirm valid transactions as a means of collecting fees.
To the extent that any miners cease to record transactions in solved blocks, such transactions will not be recorded on the Bitcoin blockchain
until a block is solved by a miner who does not require the payment of transaction fees. Miners have historically accepted relatively
low transaction confirmation fees. If miners collude in an anticompetitive manner to reject low transaction fees, then bitcoin users could
be forced to pay higher fees, thus reducing the attractiveness of the bitcoin network, or to wait longer times for their transactions
to be validated by a miner who does not require the payment of a transaction fee. Bitcoin mining occurs globally, and it may be difficult
for authorities to apply antitrust regulations or similar doctrines across multiple jurisdictions. Any collusion among miners may adversely
impact an investment in the Trust or the ability of the Trust to operate.
**As technology advances, miners may be unable to acquire the digital
asset mining hardware necessary to develop and launch their operations. A decline in the bitcoin mining population could adversely affect
the Bitcoin network and an investment in the Trust.**
****
Due to the increasing demand for digital asset mining hardware, miners
may be unable to acquire the proper mining equipment or suitable amount of equipment necessary to continue their operations or develop
and launch their operations. In addition, because successful mining of a digital asset that uses proof of work validation
requires maintaining or exceeding a certain level of computing power relative to other validators, miners will need to upgrade their mining
hardware periodically to keep up with their competition. The development of supercomputers with disproportionate computing power may threaten
the integrity of the bitcoin market by concentrating mining power, which would make it unprofitable for other miners to mine. The expense
of purchasing or upgrading new equipment may be substantial and diminish returns to miners dramatically. A decline in miners may result
in a decrease in the value of bitcoin and the value of the Trust.
**If profit margins of bitcoin mining operations are not high,
miners may elect to immediately sell bitcoin earned by mining, resulting in a reduction in the price of bitcoin that could adversely affect
an investment in the Trust.**
****
Bitcoin network mining operations have rapidly evolved over the past
several years from individual users mining with computer processors, graphics processing units and first-generation ASIC (application-specific
integrated circuit) machines. New processing power is predominantly added to the Bitcoin network currently by professionalized
mining operations. Such operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. Significant
capital is necessary for mining operations to acquire this hardware, lease operating space (often in data centers or warehousing facilities),
afford electricity costs and employ technicians to operate the mining farms. As a result, professionalized mining operations are of a
greater scale than prior Bitcoin network validators and have more defined, regular expenses and liabilities. In addition, mining operations
may choose to immediately sell bitcoin earned from their operations into the global bitcoin market. In past years, individual miners are
believed to have been more likely to hold newly mined bitcoin for more extended periods. The immediate selling of newly mined bitcoin
could increase the supply of bitcoin on the bitcoin market, creating downward pressure on the price of bitcoin.
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| | |
A professional mining operation operating at a low profit margin may
be more likely to sell a higher percentage of its newly mined bitcoin rapidly, and it may partially or completely cease operations if
its profit margin is negative. The reduction in mining rewards of bitcoin, including block reward halving events, which are events that
occur after a specific period of time that reduce the block reward earned by miners, could be inadequate to incentivize miners to continue
to perform mining activities. In a low profit margin environment, a higher percentage of the new bitcoin mined each day will be sold into
the bitcoin market more rapidly, thereby reducing bitcoin prices. The network effect of reduced profit margins resulting in greater sales
of newly mined bitcoin could result in a reduction in the price of bitcoin that could adversely affect an investment in the Trust.
**Congestion or delay in the Bitcoin network may delay purchases
or sales of bitcoin by the Trust.**
****
The size of each block on the Bitcoin blockchain is currently limited
and is significantly below the level that centralized systems can provide with regard to volume of transaction processing. Increased transaction
volume on the Bitcoin network could result in delays in the recording of transactions due to congestion in the Bitcoin network. Moreover,
unforeseen system failures, disruptions in operations, or poor connectivity may also result in delays in the recording of transactions
on the Bitcoin network. Any delay in the Bitcoin network could affect the Trusts ability to buy or sell bitcoin at an advantageous
price, or may create the opportunity for a bad actor to double spend bitcoin, resulting in decreased confidence in the Bitcoin network.
Over the longer term, delays in confirming transactions could reduce the attractiveness to merchants and other commercial parties as a
means of payment. As a result, the Bitcoin network and the value of the Trust would be adversely affected.
**Bitcoin mining is energy intensive and concerns about climate
change may raise the economic and societal costs of bitcoin mining.**
****
Bitcoin mining involves advanced computers that consume significant
energy, which may have a negative environmental impact and give rise to public opinion against allowing, or government regulations restricting,
the use of electricity for mining operations. Researchers at the University of Cambridge estimate that bitcoin mining consumes 121.36
terawatt-hours per year, which equates to approximately the annual energy consumption of Argentina. The energy intensive nature of bitcoin
mining is in some circumstances potentially mitigated by the fact that many miners could elect to operate geographically near renewable
energy sources where energy might be otherwise wasted. However, miners may be forced to cease operations during an electricity shortage
or power outage, or if electricity prices increase where the mining activities are performed. This could adversely the price of bitcoin,
or the operation of the Bitcoin network, and accordingly adversely affect the value of the Shares.
In addition, due to concerns around energy consumption and the impact
on public utility companies, various states and cities have implemented, or are considering implementing, moratoriums on mining activity
in their jurisdictions. A significant reduction in mining activity as a result of such actions could adversely affect the security of
the Bitcoin network by making it easier for a malicious actor or botnet to manipulate the relevant blockchain. If regulators or public
utilities take action that restricts or otherwise impacts mining activities, such actions could result in decreased security or activity
of the Bitcoin network, consequently adversely impacting the value of the Shares.
Risk Factors Associated with the Bitcoin Platform Market
**The value of the Shares relates directly to the value of the
bitcoin held by the Trust and fluctuations in the price of bitcoin could materially and adversely affect an investment in the Shares.**
The Shares are designed to mirror as closely as possible the performance
of the price of bitcoin, as determined by the Reference Rate, and the value of the Shares relates directly to the value of the bitcoin
held by the Trust, less the Trusts liabilities (including estimated accrued but unpaid fees and expenses). The Reference Rate is
derived from the transaction prices on electronic marketplaces where platform participants may first use fiat currency to trade, buy and
sell bitcoin based on bid-ask trading. The Reference Rate uses U.S. dollar-denominated trading data from bitcoin platforms to determine
its value. Whether a bitcoin platform is considered eligible to be included in the Reference Rates calculation depends on considerations
such as depth of liquidity, compliance with applicable legal and regulatory requirements, data availability, domicile and acceptance of
U.S. dollar deposits. The price of bitcoin has fluctuated widely over the past several years and may continue to experience significant
price fluctuations. Several factors may affect the Reference Rate, including, but not limited to:
|
| Total bitcoin in existence was approximately 19,970,000 as of December 31, 2025; | |
|
| Global bitcoin demand, which is influenced by the growth of retail merchants and commercial businesses acceptance of
bitcoin as payment for goods and services, the security of online bitcoin platforms and digital wallets that hold bitcoin, the perception
that the use and holding of bitcoin is safe and secure, the lack of regulatory restrictions on their use and the reputation of bitcoin
for illicit use; | |
|
| Global bitcoin supply, which is influenced by similar factors as global bitcoin demand, in addition to fiat currency needs by miners
(for example, to invest in equipment or pay electricity bills) and taxpayers who may liquidate bitcoin holdings around tax deadlines to
meet tax obligations; | |
|
| Investors expectations with respect to the rate of inflation of fiat currencies; | |
|
| Investors expectations with respect to the rate of deflation of bitcoin; | |
| | 40 | | |
| | |
|
| Interest rates; | |
|
| Currency exchange rates, including the rates at which bitcoin may be exchanged for fiat currencies; | |
|
| Fiat currency withdrawal and deposit policies of bitcoin platforms and liquidity of such bitcoin platforms; | |
|
| Interruptions in service from or failures of major bitcoin platforms; | |
|
| Cyber theft of bitcoin from online bitcoin wallet providers, or news of such theft from such providers, or from individuals
bitcoin wallets; | |
|
| Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest
in bitcoin; | |
|
| Monetary policies of governments, trade restrictions, currency devaluations and revaluations; | |
|
| Regulatory measures, if any, that restrict the use of bitcoin as a form of payment or the purchase of bitcoin on the bitcoin market; | |
|
| The availability and popularity of businesses that provide bitcoin-related services; | |
|
| The maintenance and development of the open-source software protocol of the Bitcoin network; | |
|
| Increased competition from other forms of cryptocurrency or payments services; | |
|
| Global or regional political, economic or financial events and situations; | |
|
| Expectations among Bitcoin economy participants that the value of bitcoin will soon change; and | |
|
| Fees associated with processing a bitcoin transaction. | |
If bitcoin markets continue to be subject to sharp fluctuations, you
may experience losses if you need to sell your Shares at a time when the price of bitcoin is lower than it was when you made your prior
investment. Even if you are able to hold Shares for the long-term, your Shares may never generate a profit, since bitcoin markets have
historically experienced extended periods of flat or declining prices, in addition to sharp fluctuations.
In addition, investors should be aware that there is no assurance that
bitcoin will maintain their long-term value in terms of future purchasing power or that the acceptance of bitcoin payments by mainstream
retail merchants and commercial businesses will continue to grow. In the event that the price of bitcoin declines, the Sponsor expects
the value of an investment in the Shares to decline proportionately.
**Due to the unregulated nature and lack of transparency surrounding
the operations of bitcoin platforms, the marketplace may lose confidence in bitcoin platforms, upon which the Trust is dependent.**
****
Bitcoin platforms are relatively new and, in some cases, not subject
to direct regulatory oversight. Furthermore, while many prominent bitcoin platforms provide the public with significant information regarding
their ownership structure, management teams, corporate practices and regulatory compliance, many bitcoin platforms do not provide this
information. Bitcoin platforms do not appear to be subject to, or may not comply with, regulation in a similar manner as other regulated
trading platforms, such U.S. securities exchanges. As a result, the marketplace may lose confidence in bitcoin platforms, including prominent
bitcoin platforms that handle a significant volume of bitcoin trading.
Many digital asset platforms are unlicensed, unregulated, operate without
extensive supervision by governmental authorities, and do not provide the public with significant information regarding their ownership
structure, management team, corporate practices, cybersecurity, and regulatory compliance. In particular, those located outside the United
States may be subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions. As a result,
trading activity on or reported by these digital asset platforms is generally significantly less regulated than trading in regulated U.S.
securities and commodities markets, and may reflect behavior that would be prohibited in regulated U.S. trading venues. For example, in
2019 there were reports claiming that 80.95% of bitcoin trading volume on bitcoin platforms was false or non-economic in nature, with
specific focus on unregulated bitcoin platforms located outside of the U.S. Such reports may indicate that the bitcoin platform market
is significantly smaller than expected and that the U.S. makes up a significantly larger percentage of the bitcoin platform market than
is commonly understood. Nonetheless, any actual or perceived false trading in the bitcoin platform market, and any other fraudulent or
manipulative acts and practices, could adversely affect the value of bitcoin and/or negatively affect the market perception of Bitcoin.
| | 41 | | |
| | |
In addition, over the past several years, some bitcoin platforms have
been closed due to fraud and manipulative activity, business failure or security breaches. In many of these instances, the customers of
such bitcoin platforms were not compensated or made whole for the partial or complete losses of their account balances in such bitcoin
platforms. While smaller bitcoin platforms are less likely to have the infrastructure and capitalization that make larger bitcoin platforms
more stable, larger bitcoin platforms are more likely to be appealing targets for hackers and malware and may be more likely to be targets
of regulatory enforcement action. For example, the collapse of Mt. Gox, which filed for bankruptcy protection in Japan in late February
2014, demonstrated that even the largest bitcoin platforms could be subject to abrupt failure with consequences for both users of bitcoin
platforms and the Bitcoin industry and market as a whole. In particular, in the two weeks that followed the February 7, 2014, halt of
bitcoin withdrawals from Mt. Gox, the value of one bitcoin fell on other bitcoin platforms from around $795 on February 6, 2014 to $578
on February 20, 2014. Additionally, in January 2015, Bitstamp announced that approximately 19,000 bitcoin had been stolen from its operational
or hot wallets. Further, in August 2016, it was reported that almost 120,000 bitcoins worth around $78 million were stolen
from Bitfinex, a large bitcoin platform. The value of bitcoin immediately decreased over 10% following reports of the theft at Bitfinex
and the shares suffered a corresponding decrease in value. In July 2017, FinCEN assessed a $110 million fine against BTC-E, a now defunct
bitcoin platform, for facilitating crimes such as drug sales and ransomware attacks. In addition, in December 2017, Yapian, the operator
of Seoul-based cryptocurrency platform Youbit, suspended digital asset trading and filed for bankruptcy following a hack that resulted
in a loss of 17% of Yapians assets. Following the hack, Youbit users were allowed to withdraw approximately 75% of the digital
assets in their platform accounts, with any potential further distributions to be made following Yapians pending bankruptcy proceedings.
In addition, in January 2018, the Japanese digital asset platform, Coincheck, was hacked, resulting in losses of approximately $535 million,
and in June 2020 the platform suffered another data breach that resulted in the unauthorized access to its domain registration service,
forcing the Japanese platform to halt its crypto remittance service. In February 2018, the Italian digital asset platform, Bitgrail, was
hacked, resulting in approximately $170 million in losses. In May 2019, one of the worlds largest bitcoin platforms, Binance, was
hacked, resulting in losses of approximately $40 million. The Spanish cryptocurrency platform, 2gether, disclosed in August 2020 that
a cyberattack against its platform resulted in $1.45 million in crypto assets-about one-third of the firms holdings at that time-being
stolen. More recently, in November 2022, FTX, one of the largest digital asset platforms by volume at the time, halted customer withdrawals
amid rumors of the companys liquidity issues and likely insolvency, which were subsequently corroborated by its CEO. Shortly thereafter,
FTXs CEO resigned and FTX and many of its affiliates filed for bankruptcy in the United States, while other affiliates have entered
insolvency, liquidation, or similar proceedings around the globe, following which the U.S. Department of Justice brought criminal fraud
and other charges, and the SEC and CFTC brought civil securities and commodities fraud charges against certain of FTXs and its
affiliates senior executives, including its former CEO (and the CEO was subsequently convicted by a jury of fraud). Around the
same time, there were reports that approximately $300-600 million of digital assets were removed from FTX and the full facts remain unknown,
including whether such removal was the result of a hack, theft, insider activity, or other improper behavior. On February 21, 2025, Bybit,
a centralized platform for exchanging digital assets, announced that more than $1.4 billion in ether had been stolen from its platform.
Hackers were able to manipulate Bybits transfer process to authorize and complete the illicit transaction. The incident has resulted
in renewed concerns over the security of digital asset platforms.
Negative perception, a lack of stability in the bitcoin markets and
the closure or temporary shutdown of bitcoin platforms due to fraud, business failure, hackers or malware, or government-mandated regulation
may reduce confidence in the Bitcoin network and result in greater volatility in the prices of bitcoin. Furthermore, the closure or temporary
shutdown of a bitcoin platform used in calculating the Reference Rate may result in a loss of confidence in the Trusts ability
to determine its bitcoin holdings on a daily basis, although the Benchmark Administrator has documented procedures in place in its published
methodology to mitigate against these situations and continue to calculate and publish the Reference Rate. These potential consequences
of such a bitcoin platforms failure could adversely affect the value of the Shares.
**Since there is no limit on the number of bitcoin that the Trust
may acquire, the Trust itself, as it grows, may have an impact on the supply and demand of bitcoin that ultimately may affect the price
of the Shares in a manner unrelated to other factors affecting the global market for bitcoin.**
****
The Trust Agreement places no limit on the number of bitcoin the Trust
may hold. Moreover, the Trust may issue an unlimited number of Shares, subject to registration requirements, and therefore acquire an
unlimited number of bitcoin in existence at any point in time. The Bitcoin networks mathematical protocols under which bitcoin
is created or mined permit the creation of a limited, predetermined number of bitcoin not to exceed 21 million. Furthermore,
the rate of creation or issuance of bitcoin cannot be increased ahead of the protocols schedule.
If the number of bitcoin acquired by the Trust is large enough relative
to global bitcoin supply and demand, further creations and redemptions of Shares could have an impact on the supply of and demand for
bitcoin in a manner unrelated to other factors affecting the global market for bitcoin. Such an impact could affect the Reference Rate,
which would directly affect the price at which Shares are traded on the Exchange or the price of future Baskets created or redeemed by
the Trust.
**The Shares may trade at a discount or premium in the trading
price relative to the Trusts bitcoin holdings per Share as a result of non-concurrent trading hours between the Exchange and the
bitcoin platform market.**
****
The value of a Share may be influenced by non-concurrent trading hours
between the Exchange and various bitcoin platforms, including those that represent components of the Reference Rate. While the Exchange
is open for trading in the Shares for a limited period each day, the bitcoin platform market is a 24-hour marketplace; however, trading
volume and liquidity on the bitcoin platform market is not consistent throughout the day and bitcoin platforms, including the larger-volume
markets, have been known to shut down temporarily or permanently due to security concerns, directed denial of service attacks and distributed
denial-of-service attacks and other reasons. As a result, during periods when the Exchange is open but large bitcoin platforms (or a substantial
number of smaller bitcoin platforms) are either lightly traded or are closed, trading spreads and the resulting premium or discount on
the Shares may widen and, therefore, increase the difference between the price of the Shares and the Trusts bitcoin holdings per
Share. Premiums or discounts may have an adverse effect on an investment in the Shares if a Shareholder sells or acquires its Shares during
a period of discount or premium, respectively.
| | 42 | | |
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**Investors in Shares in the secondary market may be subject to
brokerage commissions, over which the Trust has no control.**
****
Investors buying or selling Shares in the secondary market will pay
brokerage commissions or other charges imposed by brokers, as determined by the applicable broker. Brokerage commissions are often a fixed
amount and may be a significant proportional cost for investors seeking to buy or sell relatively small amounts of Shares. In addition,
secondary market investors will also incur the cost of the difference between the price that an investor is willing to buy shares (the
bid price) and the price at which an investor is willing to sell Shares (the ask price). This difference in
bid and ask prices is often referred to as the spread or bid/ask spread. The bid/ask spread varies over time
for Shares based on trading volume and market liquidity of the Shares and the bitcoin comprising the Trusts portfolio, and is generally
lower if Shares have more trading volume and market liquidity and higher if Shares have little trading volume and market liquidity. Further,
a relatively small investor base in the Trust, asset swings in the Trust and/or increased market volatility may cause bid/ask spreads
to increase. Shares, similar to shares of other issuers listed on a stock exchange, may be sold short and are therefore subject to the
risk of increased volatility associated with short selling. Due to the costs of buying or selling Shares, including bid/ask spreads, frequent
trading of Shares may significantly reduce investment results and an investment in the Shares may not be advisable for investors who anticipate
regularly making small investments.
**If bitcoin prices on the bitcoin platform market move negatively
during hours when the Exchange is closed, trading prices on the Exchange may gap down at market open.**
****
The value of a Share may be influenced by non-concurrent trading hours
between the Exchange and various bitcoin platforms, including those that represent components of the Reference Rate. While the Exchange
is open for trading in the Shares for a limited period each day, the bitcoin platform market is a 24-hour marketplace. During periods
when the Exchange is closed but bitcoin platforms are open, significant changes in the price of bitcoin on the platform market could result
in a difference in performance between the value of bitcoin as measured by the Reference Rate and the most recent bitcoin holdings per
Share or closing trading price. To the extent that the price of bitcoin on the platform market, and the value of bitcoin as measured by
the Reference Rate, moves significantly in a negative direction after the close of the Exchange, the trading price of the Shares may gap
down to the full extent of such negative price shift when the Exchange reopens. To the extent that the price of bitcoin on the platform
market drops significantly during hours the Exchange is closed, investors may not be able to sell their Shares until after the gap
down has been fully realized, resulting in an inability to mitigate losses in a rapidly negative market.
**A possible short squeeze due to a sudden increase
in demand for the Shares that largely exceeds supply may lead to price volatility in the Shares.**
****
Investors may purchase Shares to hedge existing bitcoin or other digital
currencies, commodity or currency exposure or to speculate on the price of bitcoin. Speculation on the price of bitcoin may involve long
and short exposures. To the extent that aggregate short exposure exceeds the number of Shares available for purchase (for example, in
the event that large redemption requests by Authorized Participants dramatically affect Share liquidity), investors with short exposure
may have to pay a premium to repurchase Shares for delivery to Share lenders. Those repurchases may, in turn, dramatically increase the
price of the Shares until additional Shares are created through the creation process. This is often referred to as a short squeeze.
A short squeeze could lead to volatile price movements in the Shares that are not directly correlated to the price of bitcoin.
**Purchasing activity in the bitcoin platform market associated
with Basket creations or selling activity following Basket redemptions may affect the Reference Rate and Share trading prices, adversely
affecting an investment in the Shares.**
****
Purchasing activity associated with acquiring bitcoin required for
deposit with the Trust in connection with the creation of Baskets may increase the market price of bitcoin on the bitcoin platform market,
which will result in higher prices for the Shares. Increases in the market price of bitcoin may also occur as a result of the purchasing
activity of other market participants. Other market participants may attempt to benefit from an increase in the market price of bitcoin
that may result from increased purchasing activity of bitcoin connected with the issuance of Baskets. Consequently, the market price of
bitcoin may decline immediately after Baskets are created.
Selling activity associated with sales of bitcoin withdrawn from the
Trust in connection with the redemption of Baskets may decrease the market price of bitcoin on the bitcoin platform market, which will
result in lower prices for the Shares. Decreases in the market price of bitcoin may also occur as a result of the selling activity of
other market participants. If the Reference Rate declines, the trading price of the Shares will generally also decline.
| | 43 | | |
| | |
**An investment in the Shares may be adversely affected by competition
from other methods of investing in bitcoin.**
****
The Trust competes with direct investments in bitcoin and other potential
financial vehicles, possibly including securities backed by or linked to bitcoin and digital currency financial vehicles similar to the
Trust. Market and financial conditions, and other conditions beyond the Sponsors control, may make it more attractive to invest
in other financial vehicles or to invest in bitcoin directly, which could limit the market for the Shares and reduce the liquidity of
the Shares.
**The Reference Rate may be affected by the sale of other digital
currency financial vehicles that invest in and track the price of bitcoin.**
****
To the extent digital currency financial vehicles other than the Trust
tracking the price of bitcoin are formed and represent a significant proportion of the demand for bitcoin, large redemptions of the securities
of these digital currency financial vehicles, or private funds holding bitcoin, could negatively affect the Reference Rate, the Trusts
bitcoin holdings and the price of the Shares.
**The impact of geopolitical or economic events on the supply and
demand for bitcoin is uncertain, but could motivate large-scale sales of bitcoin, which could result in a reduction in the Reference Rate
and adversely affect an investment in the Shares.**
****
As an alternative to fiat currencies that are backed by central governments,
digital assets such as bitcoin, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative,
decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical
events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of bitcoin either globally or locally.
Large-scale sales of bitcoin would result in a reduction in the Reference Rate and could adversely affect an investment in the Shares.
**Demand for bitcoin is driven, in part, by its perceived status
as a prominent and secure digital asset. It is possible that a digital asset other than bitcoin could have features that make it more
desirable to a material portion of the digital asset user base, resulting in a reduction in demand for bitcoin, which could have a negative
impact on the price of bitcoin and adversely affect an investment in the Shares.**
****
Bitcoin was the first digital asset to gain global adoption and critical
mass, and as a result, it has a first to market advantage over other digital assets. As of December 31, 2025, bitcoin was
the largest digital asset by market capitalization and had the largest user base and largest combined mining power. Despite this first
to market advantage, as of December 31, 2025, there were over 29 million alternative digital assets tracked by CoinMarketCap, having a
total market-capitalization of approximately $2.96 trillion (including the approximately $1.754 trillion market cap of bitcoin), as calculated
using market prices and total available supply of each digital asset. In addition, many consortiums and financial institutions are also
researching and investing resources into private or permissioned blockchain platforms rather than open platforms like the Bitcoin network.
Competition from the emergence or growth of alternative digital assets could have a negative impact on the demand for, and price of, bitcoin
and thereby adversely affect an investment in the Shares.
Investors may invest in bitcoin through means other than the Shares,
including through direct investments in bitcoin and other potential financial vehicles, possibly including securities backed by or linked
to bitcoin and digital asset financial vehicles similar to the Trust. Market and financial conditions, and other conditions beyond the
Sponsors control, may make it more attractive to invest in other financial vehicles or to invest in bitcoin directly, which could
limit the market for, and reduce the liquidity of, the Shares. In addition, to the extent digital asset financial vehicles other than
the Trust tracking the price of bitcoin are formed and represent a significant proportion of the demand for bitcoin, large purchases or
redemptions of the securities of these digital asset financial vehicles, or private investment vehicles holding bitcoin, could negatively
affect the Reference Rate, the bitcoin holdings, the price of the Shares, the NAV and the NAV per Share.
Risk Factors Associated with the Reference Rate
**The Reference Rate has a limited history and there are limitations
with the price of bitcoin reflected there.**
****
The Reference Rate has a limited history, having first been introduced
on February 28, 2022. The Reference Rate is also based on the BRRs methodology, which was introduced November 14, 2016. The value
of both the Reference Rate and the BRR is an average composite reference rate calculated using volume-weighted trading price data from
certain bitcoin platforms (Constituent Platforms). These platforms are chosen by the Benchmark Administrator in accordance
with the provisions of its publicly available CF Constituent Platform Criteria that is available on its website, conformance to which
is supervised by an oversight body (the Oversight Committee). This CF Constituent Platform Criteria and the composition
of the Constituent Platforms may change over time, and the current selection of Constituent Platforms has only been in place since May
2022. Neither the Benchmark Administrator nor the Oversight Committee are obligated to take the needs of the Trust, the Shareholders,
or anyone else into consideration in connection with such changes. There is no guarantee that the methodology currently used in calculating
the Reference Rate will appropriately track the price of bitcoin in the future.
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| | |
**The value of bitcoin as reflected by the Reference Rate may be
subject to momentum pricing due to speculation regarding future appreciation in value, leading to greater volatility which could adversely
affect an investment in the Shares.**
****
Momentum pricing typically is associated with growth stocks and other
assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. The Reference Rate
is determined using data from various bitcoin platforms. The Sponsor believes that momentum pricing of bitcoin has resulted, and may continue
to result, in speculation regarding future appreciation in the value of bitcoin, inflating and making the Reference Rate more volatile.
As a result, bitcoin may be more likely to fluctuate in value due to changing investor confidence in future appreciation or depreciation
in the Reference Rate, which could adversely affect an investment in the Shares.
**The Benchmark Administrator could experience system failures
or errors.**
****
If the computers or other facilities of the Benchmark Administrator,
data providers and/or relevant bitcoin trading platforms malfunction for any reason, calculation and dissemination of the Reference Rate
may be delayed and trading in the Shares may be suspended for a period of time. Errors in Reference Rate data, the Reference Rate computations
and/or construction may occur from time to time and may not be identified and/or corrected for a period of time or at all, which may have
an adverse impact on the Trust and the Shareholders. Any of the foregoing may lead to the errors in the Reference Rate, which may lead
to a different investment outcome for the Trust and its Shareholders than would have been the case had such events not occurred.
The Reference Rate is the reference price for calculating the Trusts
NAV. Consequently, losses or costs associated with the Reference Rates errors or other risks described above will generally be
borne by the Trust and the Shareholders and neither the Sponsor nor its affiliates or agents make any representations or warranties regarding
the foregoing. If the Reference Rate is not available, the Trusts holdings may be fair valued in accordance with the policy approved
by the Sponsor. To the extent the valuation determined in accordance with the policy approved by the Sponsor differs materially from the
actual market price of bitcoin, the price of the Shares may no longer track, whether temporarily or over time, the price of bitcoin, which
could adversely affect an investment in the Trust by reducing investors confidence in the Shares ability to track the price
of bitcoin, which could adversely affect the value of the Shares.
**The Reference Rate could fail to track the global bitcoin price**
****
Although the Reference Rate is intended to provide a reasonable measure
for the market price of bitcoin, third parties may be able to purchase and sell bitcoin on public or private markets not included among
the bitcoin platforms used in calculating the Reference Rate, and such transactions may take place at prices materially higher or lower
than the Reference Rate. Moreover, there may be variances in the prices of bitcoin on the various bitcoin platforms used in calculating
the Reference Rate and the price of bitcoins on the bitcoin platforms could be materially higher or lower than the Reference Rate price.
To the extent the Reference Rate price differs materially from the actual prices available on a bitcoin platform used to calculate it,
or the global market price of bitcoin, the price of the Shares may no longer track, whether temporarily or over time, the global market
price of bitcoin, which could adversely affect an investment in the Trust by reducing investors confidence in the Shares
ability to track the market price of bitcoin. To the extent such prices differ from the Reference Rate, investors may lose confidence
in the Shares ability to track the market price of bitcoin, which could adversely affect the value of the Shares.
**The Sponsor can discontinue using the Reference Rate and use
a different pricing or valuation methodology instead.**
****
The Sponsor, in its sole discretion, may select, remove, change, or
replace the pricing or valuation methodology or policies used to value the Trusts assets and determine NAV and NAV per Share, including
the Reference Rate. To the extent such new or revised pricing or valuation methodologies or their pricing output differ from the Reference
Rate, investors may lose confidence in the Shares ability to track the market price of bitcoin, which could adversely affect the
value of the Shares. The Sponsor may make this decision for any reason, including, but not limited to, a determination that the Reference
Rate differs materially from the actual prices available on a bitcoin platform used to calculate it, that errors in the Reference Rate
have negatively impacted the investment outcome for the Trust and its Shareholders, or that third parties are able to purchase and sell
bitcoin on exchanges at prices that are materially higher or lower than those reflected by the Reference Rate. The Sponsor is under no
obligation to select a different pricing or valuation method under any circumstance. If the Sponsor makes the decision to materially change
the valuation methodology or replace of either the Reference Rate or the Benchmark Administrator, the Sponsor will notify Shareholders
via a posting on the Trusts website, prospectus supplement, post-effective amendment, through a current report on Form 8-K or in
the Trusts annual or quarterly reports.
Risk Factors Associated with Investing in the Trust
**As the Sponsor and its management have no meaningful history
of operating an investment vehicle like the Trust within the United States, their experience may be inadequate or unsuitable to manage
the Trust.**
****
The Sponsor has no meaningful history of past performance in managing
investment vehicles like the Trust within the United States. The past performances of the Sponsors affiliate in other investment
vehicles in other jurisdictions, including their experiences with bitcoin and other commodities, are no indication of the Sponsors
ability to manage an investment vehicle such as the Trust within the United States. If the experience of the Sponsor and its management
is inadequate or unsuitable to manage an investment vehicle such as the Trust, the operations of the Trust may be adversely affected.
| | 45 | | |
| | |
**The Trust is a passive investment vehicle that does not seek
to generate returns beyond tracking the price of bitcoin. The Trust is not actively managed and will be affected by a general decline
in the price of bitcoin.**
****
The Trust is a passive investment vehicle that does not seek to generate
returns beyond tracking the price of bitcoin. The Sponsor does not actively manage the bitcoin held by the Trust. This means the Sponsor
does not speculatively sell bitcoin at times when its price is high or speculatively acquire bitcoin at low prices in the expectation
of future price increases. It also means the Trust will not utilize leverage, derivatives or any similar arrangements in seeking to meet
its investment objective. Any losses sustained by the Trust will adversely affect the value of your Shares.
**The value of the Shares may be influenced by a variety of factors
unrelated to the value of bitcoin.**
****
The value of the Shares may be influenced by a variety of factors unrelated
to the price of bitcoin that may have an adverse effect on the price of the Shares. These factors include the following factors:
|
| Unanticipated problems or issues with respect to the mechanics of the Trusts operations and the trading of the Shares may arise,
in particular due to the fact that the mechanisms and procedures governing the creation and redemption of Baskets in exchange for cash,
offering of the Shares and storage of bitcoin have been developed specifically for this product; | |
|
| The Trust could experience difficulties in operating and maintaining its technical infrastructure, including in connection with expansions
or updates to such infrastructure, which are likely to be complex and could lead to unanticipated delays, unforeseen expenses and security
vulnerabilities; | |
|
| The Trust could experience unforeseen issues relating to the performance and effectiveness of the security procedures used to protect
the Trusts account with the Bitcoin Custodian, or the security procedures may not protect against all errors, software flaws or
other vulnerabilities in the Trusts technical infrastructure, which could result in theft, loss or damage of its assets; | |
|
| Service providers may fail to perform their obligations or decide to terminate their relationships with the Trust due to concerns
that the introduction of privacy enhancing features to the Bitcoin network may increase the potential for bitcoin to be used to facilitate
crime, exposing such service providers to potential reputational harm. Any of these factors could affect the value of the Shares, either
directly or indirectly through their effect on the Trusts assets; or | |
|
| Prime Execution Agent could experience difficulties from business failures, bankruptcies, hacking, fraud, crime, government investigations,
or other negative developments affecting digital asset businesses, including digital asset platforms, or banks or other financial institutions
and service providers which provide services to the digital assets industry. | |
**The Shares are a relatively new securities product.**
****
The mechanisms and procedures governing the creation, redemption and
offering of the Shares are recently developed securities products. Consequently, there may be unanticipated problems or issues with respect
to the mechanics of the operations and the trading of the Shares that could have a material adverse effect on an investment in the Shares.
**The Trust is subject to market risk.**
****
Market risk refers to the risk that the market price of bitcoin held
by the Trust will rise or fall, sometimes rapidly or unpredictably. An investment in the Shares is subject to market risk, including the
possible loss of the entire principal of the investment.
**Investors should not rely on past performance in deciding whether
to buy Shares.**
****
Investors should not rely on the past performance of the Trust, the
Reference Rate or bitcoin in deciding whether to buy Shares in the Fund.
**The NAV may not always correspond to the market price of bitcoin
and, as a result, Baskets may be created or redeemed at a value that is different from the market price of the Shares.**
****
The NAV of the Trust will change as fluctuations occur in the market
price of the Trusts bitcoin holdings. Shareholders should be aware that the public trading price per Share may be different from
the NAV for a number of reasons, including price volatility, trading activity, the closing of bitcoin platforms due to fraud, failure,
security breaches or otherwise, and the fact that supply and demand forces at work in the secondary trading market for Shares are related,
but not identical, to the supply and demand forces influencing the market price of bitcoin.
| | 46 | | |
| | |
An Authorized Participant may be able to create or redeem a Basket
at a discount or a premium to the public trading price per Share and the Trust will therefore maintain its intended fractional exposure
to a specific amount of bitcoin per Share.
Shareholders also should note that the size of the Trust in terms of
total bitcoin held may change substantially over time and as Baskets are created and redeemed.
**Authorized Participants buying and selling activity associated
with the creation and redemption of Baskets may adversely affect an investment in the Shares of the Trust.**
****
Authorized Participants purchase of bitcoin in connection with
Basket creation orders may cause the price of bitcoin to increase, which will result in higher prices for the Shares. Increases in the
bitcoin prices may also occur as a result of bitcoin purchases by other market participants who attempt to benefit from an increase in
the market price of bitcoin when Baskets are created. The market price of bitcoin may therefore decline immediately after Baskets are
created.
Selling activity associated with sales of bitcoin by Authorized Participants
in connection with redemption orders may decrease the bitcoin prices, which will result in lower prices for the Shares. Decreases in bitcoin
prices may also occur as a result of selling activity by other market participants.
In addition to the effect that purchases and sales of bitcoin by Authorized
Participants may have on the price of bitcoin, sales and purchases of bitcoin by similar investment vehicles (if developed) could impact
the price of bitcoin. If the price of bitcoin declines, the trading price of the Shares will generally also decline.
**The inability of Authorized Participants and market makers to
hedge their bitcoin exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares.**
****
Authorized Participants and market makers will generally want to hedge
their exposure in connection with Basket creation and redemption orders. To the extent Authorized Participants and market makers are unable
to hedge their exposure due to market conditions (*e.g.*, insufficient bitcoin liquidity in the market, inability to locate an appropriate
hedge counterparty, etc.), such conditions may make it difficult to create or redeem Baskets or cause them to not create or redeem Baskets.
In addition, the hedging mechanisms employed by Authorized Participants and market makers to hedge their exposure to bitcoin may not function
as intended, which may make it more difficult for them to enter into such transactions. Such events could negatively impact the market
price of the Trust and the spread at which the Trust trades on the open market. The market for exchange-traded bitcoin futures has limited
trading history and operational experience and may be less liquid, more volatile and more vulnerable to economic, market and industry
changes than more established futures markets. The liquidity of the market will depend on, among other things, the adoption of bitcoin
and the commercial and speculative interest in the market for the ability to hedge against the price of bitcoin with exchange-traded bitcoin
futures.
The arbitrage mechanism on which the Trust relies to keep the price
of the Shares closely linked to the price of bitcoin, as reflected via the Reference Rate, may not function properly if Authorized Participants
are able to purchase or sell large aggregations of bitcoins in the open market at prices that are materially higher or lower than the
Reference Rate. Authorized Participants may purchase or sell bitcoins on public or private markets not included among the Bitcoin platforms
included in the Reference Rate, and such transactions may take place at prices materially higher or lower than the Reference Rate. Furthermore,
while the Reference Rate provides a U.S. dollar-denominated composite reference rate for the price of bitcoin based on the volume-weighted
price of a bitcoin on certain constituent Bitcoin platforms at any given time, the prices on each individual Bitcoin platform are not
necessarily equal to the value of a bitcoin as represented by the Reference Rate.
The price of bitcoins on an individual bitcoin platform could be materially
higher or lower than the Reference Rate. Under either such circumstance, the arbitrage mechanism will function to link the price of the
Shares to the prices at which Authorized Participants are able to purchase or sell large aggregations of bitcoins. To the extent such
prices differ materially from the Reference Rate, the price of the Shares may no longer track, whether temporarily or over time, the Reference
Rate, which could adversely affect an investment in the Trust by reducing investors confidence in the Shares ability to
track the market price of bitcoin.
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| | |
**Arbitrage transactions intended to keep the price of Shares closely
linked to the price of bitcoin may be problematic if the process for the creation and redemption of Baskets becomes more difficult, or
if Authorized Participants or market makers encounter difficulties, which may adversely affect an investment in the Shares.**
****
If the processes of creation and redemption of Baskets (which depend
on timely transfers of bitcoin to and by the Bitcoin Custodian and/or Prime Execution Agent) encounter any unanticipated difficulties,
including, but not limited to, the price volatility of bitcoin, the insolvency, business failure or interruption, default, failure to
perform, security breach, or other problems affecting the Prime Execution Agent or Bitcoin Custodian, limiting creations and redemptions
to cash, the closing of bitcoin trading platforms due to fraud, failures, regulatory or legislative action, security breaches or otherwise,
or network outages or congestion, spikes in fees demanded by miners, or other problems or disruptions affecting the Bitcoin network, the
Trusts inability in the future to obtain regulatory approvals for the offer and sale of additional Shares after the present offering
is completed, potential market participants who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage
opportunity arising from discrepancies between the price of the Shares and the price of the underlying bitcoin may not take the risk that,
as a result of those difficulties, they may not be able to realize the profit they expect. In addition, in the case of a network outage
or other problems affecting the Bitcoin network, the processing of transactions on the Bitcoin network may be disrupted, which in turn
may prevent Authorized Participants (or market makers via Authorized Participants) from transacting in bitcoin and/or purchasing or redeeming
Baskets. In such situations, the liquidity of Shares may decline and the price of the Shares may fluctuate independently of the price
of bitcoin and may fall.
**The use of cash creations and redemptions, as opposed to in-kind
creations and redemptions, may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the
Shares closely linked to the price of bitcoin and, as a result, the price of the Shares may fall or otherwise diverge from NAV.**
****
The use of cash creations and redemptions, as opposed to in-kind creations
and redemptions, could cause delays in trade execution due to potential operational issues arising from implementing a cash creation and
redemption model, which involves greater operational steps (and therefore execution risk), or the potential unavailability or exhaustion
of the Trusts ability to borrow bitcoin or cash as trade credits (Trade Credits), which the Trust would not be able
to use in connection with in-kind creations and redemptions. Such delays could cause the execution price associated with such trades to
materially deviate from the Reference Rate used to determine the NAV, particularly when considering that the trading prices for bitcoin
have exhibited high levels of volatility and may continue to do so. Even though the Authorized Participant is responsible for the dollar
cost of such difference in prices, Authorized Participants could default on their obligations to the Trust, or such potential risks and
costs could lead to Authorized Participants, who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage
opportunity arising from discrepancies between the price of the Shares and the price of the underlying bitcoin, to elect to not participate
in the Trusts Share creation and redemption processes. This may adversely affect the arbitrage mechanism intended to keep the price
of the Shares closely linked to the price of bitcoin, and as a result, the price of the Shares may fall or otherwise diverge from NAV.
If the arbitrage mechanism is not effective, purchases or sales of Shares on the secondary market could occur at a premium or discount
to NAV, which could harm Shareholders by causing them buy Shares at a price higher than the value of the underlying bitcoin held by the
Trust or sell Shares at a price lower than the value of the underlying bitcoin held by the Trust, causing Shareholders to suffer losses.
**The Trust is subject to risks due to its concentration of investments
in a single asset class.**
****
Unlike other funds that may invest in diversified assets, the Trusts
investment strategy is concentrated in a single asset class: bitcoin. This concentration maximizes the degree of the Trusts exposure
to a variety of market risks associated with bitcoin. By concentrating its investment strategy solely in bitcoin, any losses suffered
as a result of a decrease in the value of bitcoin can be expected to reduce the value of an interest in the Trust and will not be offset
by other gains if the Trust were to invest in underlying assets that were diversified.
**The lack of full insurance and Shareholders limited rights
of legal recourse against the Trust, Trustee, Sponsor, Trust Administrator, Cash Custodian, Bitcoin Custodian and Prime Execution Agent
expose the Trust and its Shareholders to the risk of loss of the Trusts bitcoins for which no person or entity is liable.**
****
The Trust is not a banking institution or otherwise a member of the
Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) and, therefore,
deposits held with or assets held by the Trust are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.
In addition, neither the Trust nor the Sponsor insure the Trusts bitcoins. While the Bitcoin Custodian has advised the Sponsor
that it has insurance coverage up to a certain amount that could be used to repay losses of the digital assets it custodies on behalf
of its clients, including the Trusts bitcoin, resulting from theft, Shareholders cannot be assured that the Bitcoin Custodian will
maintain adequate insurance, that such coverage will cover losses with respect to the Trusts bitcoins, or that sufficient insurance
proceeds will be available to cover the Trusts losses in full. The Bitcoin Custodians insurance may not cover the type of
losses experienced by the Trust. Alternatively, the Trust may be forced to share such insurance proceeds with other clients or customers
of the Bitcoin Custodian, which could reduce the amount of such proceeds that are available to the Trust. In addition, the bitcoin insurance
market is limited, and the level of insurance maintained by the Bitcoin Custodian may be substantially lower than the assets of the Trust.
While the Bitcoin Custodian maintains certain capital reserve requirements depending on the assets under custody, and such capital reserves
may provide additional means to cover client asset losses, the Trust cannot be assured that the Bitcoin Custodian will maintain capital
reserves sufficient to cover actual or potential losses with respect to the Trusts digital assets.
| | 48 | | |
| | |
Furthermore, under the Custodian Agreement and the Prime Execution
Agent Agreement, the Bitcoin Custodians liability and the Prime Execution Agents liability is limited in various ways. By
way of example, the Bitcoin Custodian is not liable for delays, suspension of operations, failure in performance, or interruption of service
to the extent it is directly due to a cause or condition beyond the reasonable control of the Bitcoin Custodian. In the event of potential
losses incurred by the Trust as a result of the Bitcoin Custodian losing control of the Trusts bitcoins or failing to properly
execute instructions on behalf of the Trust, the Bitcoin Custodians liability with respect to the Trust will be subject to certain
limitations which may allow it to avoid liability for potential losses or may be insufficient to cover the value of such potential losses.
Furthermore, the insurance maintained by the Bitcoin Custodian may be insufficient to cover its liabilities to the Trust. Both the Trust
and the Bitcoin Custodian are required to indemnify each other under certain circumstances. Although the Bitcoin Custodian carries insurance
for the benefit of its account holders, the Bitcoin Custodians insurance does not cover any loss in value to bitcoin and only covers
losses caused by certain events such as fraud or theft and, in such covered events, it is unlikely the insurance would cover the full
amount of any losses incurred by the Trust. The Bitcoin Custodian maintains a commercial crime insurance policy, which is intended to
cover the loss of client assets held in cold storage, including from employee collusion or fraud, physical loss including theft, damage
of key material, security breach or hack, and fraudulent transfer. The insurance maintained by the Bitcoin Custodian is shared among all
of the Bitcoin Custodians customers, is not specific to the Trust or to customers holding bitcoin with the Bitcoin Custodian, and
may not be available or sufficient to protect the Trust from all possible losses or sources of losses.
Moreover, in the event of an insolvency or bankruptcy of the Prime
Execution Agent or Bitcoin Custodian in the future, given that the contractual protections and legal rights of customers with respect
to digital assets held on their behalf by third parties are relatively untested in a bankruptcy of an entity such as the Prime Execution
Agent or Bitcoin Custodian in the virtual currency industry, there is a risk that customers assets - including the Trusts
assets - may be considered the property of the bankruptcy estate of the Bitcoin Custodian, and customers - including the Trust - may be
at risk of being treated as general unsecured creditors of such entities and subject to the risk of total loss or markdowns on value of
such assets.
The Custody Agreement contains an agreement by the parties to treat
the bitcoin credited to the Trusts Vault Balance as financial assets under Article 8 of the New York Uniform Commercial Code (Article
8), in addition to stating that the Bitcoin Custodian will serve as fiduciary and custodian on the Trusts behalf. It is
possible that a court would not treat custodied digital assets as part of the Bitcoin Custodians general estate in the event the
Bitcoin Custodian were to experience insolvency. However, due to the novelty of digital asset custodial arrangements courts have not yet
considered this type of treatment for custodied digital assets and it is not possible to predict with certainty how they would rule in
such a scenario. If the Bitcoin Custodian became subject to insolvency proceedings and a court were to rule that the custodied bitcoin
were part of the Bitcoin Custodians general estate and not the property of the Trust, then the Trust would be treated as a general
unsecured creditor in the Bitcoin Custodians insolvency proceedings and the Trust could be subject to the loss of all or a significant
portion of its assets. Moreover, in the event of the bankruptcy of the Bitcoin Custodian, an automatic stay could go into effect and protracted
litigation could be required in order to recover the assets held with the Bitcoin Custodian, all of which could significantly and negatively
impact the Trusts operations and the value of the Shares.
With respect to the Prime Execution Agent Agreement, there is a risk
that the Trading Balance, in which the Trusts bitcoin and cash is held in omnibus accounts by the Prime Execution Agent could be
considered part of the Prime Execution Agents bankruptcy estate in the event of the Prime Execution Agents bankruptcy. The
Prime Execution Agent Agreement contains an Article 8 opt-in clause with respect to the Trusts assets held in the Trading Balance.
The Prime Execution Agent is not required to hold any of the bitcoin or cash in the Trusts Trading Balance in segregation. Within
the Trading Balance, the Prime Execution Agent Agreement provides that the Trust does not have an identifiable claim to any particular
bitcoin (and cash). Instead, the Trusts Trading Balance represents an entitlement to a pro rata share of the bitcoin (and cash)
the Prime Execution Agent has allocated to the omnibus wallets the Prime Execution Agent holds, as well as the accounts in the Prime Execution
Agents name that the Prime Execution Agent maintains at a connected trading venue (each, a Connected Trading Venue)
(which are typically held on an omnibus, rather than segregated, basis). If the Prime Execution Agent suffers an insolvency event, there
is a risk that the Trusts assets held in the Trading Balance could be considered part of the Prime Execution Agents bankruptcy
estate and the Trust could be treated as a general unsecured creditor of the Prime Execution Agent, which could result in losses for the
Trust and Shareholders. Moreover, in the event of the bankruptcy of the Prime Execution Agent, an automatic stay could go into effect
and protracted litigation could be required in order to recover the assets held with the Prime Execution Agent, all of which could significantly
and negatively impact the Trusts operations and the value of the Shares. There are no policies that would limit the amount of bitcoin
that can be held temporarily in the Trading Balance maintained by the Prime Execution Agent.
Under the Trust Agreement, the Trustee and the Sponsor will not be
liable for any liability or expense incurred, including, without limitation, as a result of any loss of bitcoin by the Bitcoin Custodian,
absent fraud, bad faith, or willful misconduct on the part of the Sponsor or the Trustee, as the case may be. As a result, the recourse
of the Trust or the Shareholders to the Trustee or the Sponsor, including in the event of a loss of bitcoin by the Bitcoin Custodian,
is limited.
The Shareholders recourse against the Sponsor, the Trustee,
and the Trusts other service providers for the services they provide to the Trust, including, without limitation, those relating
to the holding of bitcoin or the provision of instructions relating to the movement of bitcoin, is limited. For the avoidance of doubt,
neither the Sponsor, the Trustee, nor any of their affiliates, nor any other party has guaranteed the assets or liabilities, or otherwise
assumed the liabilities, of the Trust, or the obligations or liabilities of any service provider to the Trust, including, without limitation,
the Bitcoin Custodian and Prime Execution Agent. The Prime Execution Agent Agreement and Custodian Agreement provide that neither the
Sponsor, the Trustee, nor their affiliates shall have any obligation of any kind or nature whatsoever, by guaranty, enforcement or otherwise,
with respect to the performance of any the Trusts obligations, agreements, representations or warranties under the Prime Execution
Agent Agreement or Custodian Agreement or any transaction thereunder. Consequently, a loss may be suffered with respect to the Trusts
bitcoin that is not covered by the Bitcoin Custodians insurance and for which no person is liability in damages. As a result, the
recourse of the Trust or the Shareholders, under applicable law, is limited.
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**If the Trade Credits are not available or become exhausted, the
Trust may face delays in buying or selling bitcoin that may adversely impact Shareholders; if the Trust does not repay the Trade Credits
on time, its assets may be liquidated by the Trade Credit Lender and its affiliates.**
****
To avoid having to pre-fund purchases or sales of bitcoin in connection
with cash creations and redemptions and sales of bitcoin to pay the Sponsors Fee and any other Trust expenses not assumed by the
Sponsor, to the extent applicable, the Trust may acquire Trade Credits from Coinbase Credit, Inc. (the Trade Credit Lender)
on a short-term basis pursuant to the Coinbase Trade Financing Agreement (the Trade Financing Agreement). The Trade Credit
Lender is only required to extend Trade Credits to the Trust to the extent such bitcoin or cash is actually available to the Trade Credit
Lender and only up to the amount available to the Trust. To the extent that Trade Credits are not available or become exhausted, (1) there
may be delays in the buying and selling of bitcoin related to cash creations and redemptions or the selling of bitcoin related to paying
the Sponsors Fee and any other Trust expenses, to the extent applicable, (2) Trust assets may be in held the Trading Balance for
a longer duration than if Trade Credits were available, and (3) the execution price associated with such trades may deviate significantly
from the Reference Rate used to determine the net asset value of the Trust. To the extent that the execution price for purchases and sales
of bitcoin related to creations and redemptions and sales of bitcoin in connection with paying the Sponsors Fee and any other Trust
expenses deviate significantly from the Reference Rate used to determine the net asset value of the Trust, the Shareholders may be negatively
impacted because the added costs of such price deviations would be incurred by the Authorized Participants and may be passed onto the
Shareholders in the secondary market. Moreover, this risk factor relating to the unavailability or exhaustion of the Trade Credits should
be interpreted as a heightened risk as a result of the change from the originally contemplated in-kind creations and redemptions to cash
creations and redemptions.
The Trust generally must repay Trade Credits by 6:00 p.m. ET (the Settlement
Deadline) on the calendar day immediately following the day the Trade Credit was extended by the Trade Credit Lender to the Trust
(or, if such day is not a business day, on the next business day). Pursuant to the Trade Financing Agreement, the Trust has granted a
security interest, lien on, and right of set off against all of the Trusts right, title and interest, in the Trusts Trading
Balance and Vault Balance established pursuant to the Prime Execution Agent Agreement and Custodian Agreement, in order to secure the
repayment by the Trust of the Trade Credits and financing fees to the Trade Credit Lender. Under a variety of circumstances, including
events of default, the Bitcoin Custodian and the Prime Execution Agent have agreed to comply with instructions from the Trade Credit Lender
with respect to the disposition of the assets in the Trusts Vault Balance and Trading Balance respectively without further consent
by the Trust. If the Trust fails to repay the Trade Credits to the Trade Credit Lender on time and in full, the Trade Credit Lender can
take control of the Trusts assets and liquidate them to repay the Trade Credit debt owed by the Trust to the Trade Credit Lender.
**Loss of a critical banking relationship for, or the failure of
a bank used by, the Trust could adversely impact the Trusts ability to create or redeem Creation Baskets, or could cause losses
to the Trust.**
The Cash Custodian is necessary to facilitate the creation and redemption
of Baskets (in exchange for cash subscriptions by Authorized Participants, or in exchange for redemptions of Shares by Authorized Participants),
and other cash movements, including in connection with the purchase of bitcoin by the Sponsor to effectuate subscriptions for cash and
the selling of bitcoin to effect redemptions for cash or pay the Sponsor Fee and, to the extent applicable, other Trust expenses, and
in extraordinary circumstances, to effect the liquidation of the Trusts bitcoin. The Trust relies on the Cash Custodian or Prime
Execution Agent, as applicable, to hold any cash related to the purchase or sale of bitcoin. To the extent that the Trust or Sponsor face
difficulty establishing or maintaining banking relationships, the loss of the Trusts banking partners, including the Cash Custodian,
the Prime Execution Agent faces difficulty establishing or maintaining banking relationships, or there is an imposition of operational
restrictions by these banking partners with the inability for the Trust to utilize other financial institutions, this may result in a
disruption of creation and redemption activity of the Trust, or cause other operational disruptions or adverse effects for the Trust.
In the future, it is possible that the Trust or Prime Execution Agent could be unable to establish accounts at new banking partners or
establish new banking relationships, or that the banks with which the Trust or Prime Execution Agent is able to establish relationships
may not be as large or well-capitalized or subject to the same degree of prudential supervision as the existing providers.
The Trust could also suffer losses in the event that a bank in which
the Trust holds customer cash, including the cash associated with the Trusts account at the Cash Custodian, or a bank used by the
Prime Execution Agent, fails, becomes insolvent, enters receivership, is taken over by regulators, enters financial distress, or otherwise
suffers adverse effects to its financial condition or operational status. Recently, some banks have experienced financial distress. If
the Cash Custodian or Prime Execution Agent (or banks it relies on) were to experience financial distress or its financial condition is
otherwise affected, the Cash Custodians or Prime Execution Agents ability to provide services to the Trust could be affected.
Moreover, the future failure of a bank at which the Trust maintains cash, could result in losses to the Trust, to the extent the balances
are not subject to deposit insurance, notwithstanding the regulatory requirements to which the Cash Custodian or Prime Execution Agent
is subject or other potential protections. As a result, the Trust could suffer losses.
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**The Prime Execution Agent routes orders through Connected Trading
Venues in connection with trading services under the Prime Execution Agent Agreement. The loss or failure of any such Connected Trading
Venues may adversely affect the Prime Execution Agents business and cause losses for the Trust.**
In connection with trading services under the Prime Execution Agent
Agreement, the Prime Execution Agent routinely routes customer orders to Connected Trading Venues, which are third-party platforms or
other trading venues (including the trading venue operated by the Prime Execution Agent). In connection with these activities, the Prime
Execution Agent may hold bitcoin with such Connected Trading Venues in order to effect customer orders, including the Trusts orders.
If the Prime Execution Agent were to experience a disruption in the Prime Execution Agents access to these Connected Trading Venues,
the Prime Execution Agents trading services under the Prime Execution Agent Agreement could be adversely affected to the extent
that the Prime Execution Agent is limited in its ability to execute order flow for its customers, including the Trust. In addition, while
the Prime Execution Agent has policies and procedures to help mitigate the Prime Execution Agents risks related to routing orders
through third-party trading venues, if any of these third-party trading venues experience any technical, legal, regulatory or other adverse
events, such as shutdowns, delays, system failures, suspension of withdrawals, illiquidity, insolvency, or loss of customer assets, the
Prime Execution Agent might not be able to fully recover the customers bitcoin that the Prime Execution Agent has deposited with
these third parties. As a result, the Prime Execution Agents business, operating results and financial condition could be adversely
affected, potentially resulting in its failure to provide services to the Trust or perform its obligations under the Prime Execution Agent
Agreement, and the Trust could suffer resulting losses or disruptions to its operations. The failure of a Connected Trading Venue at which
the Prime Execution Agent maintains customer bitcoin, including bitcoin associated with the Trust, could result in losses to the Trust,
notwithstanding the regulatory requirements to which the Prime Execution Agent is subject or other potential protections.
**The lack of active trading markets for the Shares of the Trust
may result in losses on Shareholders investments at the time of disposition of Shares.**
Although Shares of the Trust are publicly listed and traded on the
Exchange, there can be no guarantee that an active trading market for the Trust will develop or be maintained. If Shareholders need to
sell their Shares at a time when no active market for them exists, the price Shareholders receive for their Shares, assuming that Shareholders
are able to sell them, likely will be lower than the price that Shareholders would receive if an active market did exist and, accordingly,
a Shareholder may suffer losses.
**Possible illiquid markets may exacerbate losses or increase the
variability between the Trusts NAV and its market price.**
Bitcoin is a relatively new asset with limited trading history. Therefore,
the markets for bitcoin may be less liquid and more volatile than other markets for more established products. It may be difficult to
execute a bitcoin trade at a specific price when there is a relatively small volume of buy and sell orders in the bitcoin market. A market
disruption can also make it more difficult to liquidate a position or find a suitable counterparty at a reasonable cost.
Market illiquidity may cause losses for the Trust. The large size of
the positions that the Trust may acquire will increase the risk of illiquidity by both making the positions more difficult to liquidate
and increasing the losses incurred while trying to do so should the Trust need to liquidate its bitcoin, or making it more difficult for
Authorized Participants to acquire or liquidate bitcoin as part of the creation and/or redemption of Shares of the Trust. Any type of
disruption or illiquidity will potentially be exacerbated due to the fact that the Trust will typically invest in bitcoin, which is highly
concentrated.
**Several factors may affect the Trusts ability to achieve
its investment objective on a consistent basis.**
There is no guarantee that the Trust will meet its investment objective.
Factors that may affect the Trusts ability to meet its investment objective include, without limitation: (1) Authorized Participants
willingness and ability to purchase and sell bitcoin (or provide cash in relation thereto) in an efficient manner to effectuate creation
and redemption orders; (2) transaction fees associated with the Bitcoin network; (3) the bitcoin market becoming illiquid or disrupted;
(4) the Trusts Share prices being rounded to the nearest cent and/or valuation methodologies; (5) the need to conform the Trusts
portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements; (6) early or unanticipated
closings of the markets on which bitcoin trades, resulting in the inability of Authorized Participants to execute intended portfolio transactions;
(7) accounting standards; and (8) the Reference Rate becoming disrupted, unavailable or unreliable.
**The amount of bitcoin represented by the Shares will decline
over time.**
The amount of bitcoin represented by the Shares will continue to be
reduced during the life of the Trust due to the transfer of the Trusts bitcoin to pay for the Sponsor Fee, and to pay for extraordinary
fees and expenses. This dynamic will occur irrespective of whether the trading price of the Shares rises or falls in response to changes
in the price of bitcoin.
Each outstanding Share represents a fractional, undivided interest
in the bitcoin held by the Trust. The Trust does not generate any income and transfers bitcoin to pay for the Sponsor Fee, and to pay
for extraordinary fees and expenses. Therefore, the amount of bitcoin represented by each Share will gradually decline over time. This
is also true with respect to Shares that are issued in exchange for additional deposits of bitcoin over time, as the amount of bitcoin
required to create Shares proportionally reflects the amount of bitcoin represented by the Shares outstanding at the time of such creation
unit being created. Assuming a constant bitcoin price, the trading price of the Shares is expected to gradually decline relative to the
price of bitcoin as the amount of bitcoin represented by the Shares gradually declines.
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Shareholders should be aware that the gradual decline in the amount
of bitcoin represented by the Shares will occur regardless of whether the trading price of the Shares rises or falls in response to changes
in the price of bitcoin.
**The development and commercialization of the Trust is subject
to competitive pressures.**
The Trust and the Sponsor face competition with respect to the creation
of competing products. The Sponsors competitors may have greater financial, technical and human resources than the Sponsor. These
competitors may also compete with the Sponsor in recruiting and retaining qualified personnel. Smaller or early-stage companies may also
prove to be effective competitors, particularly through collaborative arrangements with large and established companies. Accordingly,
the Sponsors competitors may commercialize a product involving bitcoin more rapidly or effectively than the Sponsor is able to,
which could adversely affect the Sponsors competitive position, the likelihood that the Trust will achieve initial market acceptance
and the Sponsors ability to generate meaningful revenues from the Trust.
**The Trust is an emerging growth company, and the Trust cannot
be certain if the reduced disclosure requirements applicable to emerging growth companies will make the Shares less attractive to investors.**
The Trust is an emerging growth company, as defined in the JOBS Act,
and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies. The Trust cannot predict if investors will find the Shares less attractive because of the Trusts
reliance on these exemptions. If some investors find the Trusts Shares less attractive as a result, there may be a less active
trading market for the Shares.
In addition, under the JOBS Act, the Trusts independent registered
public accounting firm will not be required to attest to the effectiveness of its internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002 for so long as it is an emerging growth company.
For as long as the Trust takes advantage of the reduced reporting obligations,
the information that the Trust provides its Shareholders may be different from information provided by other public companies.
**If the Trust issues all Shares registered or such registration
expires, it could have to cease creating new Baskets until additional shares are registered for sale.**
Investors should be aware that if the Trust issues all Shares registered
in this offering or the offering expires, it could have to cease creating new Baskets until additional shares are registered for sale.
This could impact the trading price of the Trusts Shares. Moreover, soon after new Baskets are created and sold under this Annual
Report, there is a possibility that the availability of newly created Shares may (or may not) affect the trading price of the Shares already
issued, and both current Shareholders and purchasers of newly created Shares could be adversely affected by falling trading prices.
Risk Factors Associated with Regulation
As bitcoin and digital assets
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 (FinCEN), SEC, OCC, CFTC, FINRA, the Consumer Financial Protection Bureau (CFPB),
the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS, state financial institution
regulators, and others) have been examining the operations of digital asset networks, digital asset users and the digital asset trading
platform market. Many of these state and federal agencies have brought enforcement actions and issued advisories and rules relating to
digital asset markets. Ongoing and future regulatory actions with respect to digital assets generally or any single digital asset in particular
may alter, perhaps to a materially adverse extent, the nature of an investment in the Shares and/or the ability of the Trust to continue
to operate.
Although neither the SEC nor
the CFTC has exerted direct authority over bitcoin or bitcoin spot trading activity, the SEC and CFTC have broad authority over the regulation
of issuances of securities (including digital asset securities) and commodity interests (including derivative instruments utilizing or
referencing digital assets). The SEC and CFTCs engagement with the digital asset industry has had a material impact on the development
of digital asset markets, including initial coin offerings, margin trading, regulated and unregulated derivatives markets, and decentralized
finance markets. For example, the SEC has issued guidance as to the application of the securities
laws to digital assets and initiated enforcement actions against certain digital asset issuers and offerings on the basis that such digital
assets and offerings are securities under U.S. securities laws. In these actions, the SEC reasoned that the unregistered offer and sale
of digital assets can, in certain circumstances, including ICOs, be considered an illegal public offering of securities. Similarly, the
CFTC, together with the Department of Justice, has initiated enforcement actions against digital asset trading platforms relating to violations
of the CEA, on the basis that such platforms engaged in illegal, off-exchange retail commodity transactions in digital assets and digital
asset derivative transactions. Further enforcement actions against participants in the digital asset industry could have negative impacts
the price of digital assets, including bitcoin.
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U.S. federal and state regulators have issued reports and releases
concerning crypto assets, including Bitcoin and crypto asset markets. Beginning in early 2025, the current administration took steps to
strengthen U.S. leadership in the digital assets space, including through the use of executive orders and the establishment of an interagency
working group that is tasked with proposing a regulatory framework governing the issuance and operation of digital assets in the United
States. On January 23, 2025, President Trump issued an Executive Order that outlined the administrations commitment to strengthening
U.S. leadership in the digital asset space and established an inter-agency working group for artificial intelligence and crypto that is
tasked with proposing a regulatory framework governing the issuance and operation of digital assets, including stablecoins, in the United
States. The GENIUS Act, which establishes a federal regulatory framework for stablecoins, was passed by the U.S. Congress and signed into
law by President Trump on July 18, 2025. In addition, proposed digital assets market infrastructure legislation, the CLARITY Act, continues
to progress. In July 2025, the U.S. Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and
the Federal Deposit Insurance Corporation issued a statement for banking organizations regarding the safekeeping of digital assets, which
focused on how existing laws, regulations and risk management principles apply to such activities, and signaled additional progress in
the increasing regulatory clarity for digital assets by key financial regulators in the United States.
In January 2025, the then Acting SEC Chairman Uyeda established a new
Crypto Task Force, led by Commissioner Hester Peirce, with the intent to develop a comprehensive and clear regulatory framework
for digital assets. Subsequently, Commissioner Peirce announced a list of specific priorities to further that initiative, which included
pursuing final rules related to a digital assets security status, a revised path to registered offerings and listings for digital
asset-based investment vehicles, and clarity regarding digital asset custody, lending and staking, which has held a series of roundtables
focused on digital asset-related initiatives. Moreover, the SEC dismissed or paused ongoing enforcement actions or investigations against
certain digital asset platforms and companies, including Coinbase, Binance, Kraken and Uniswap, during the first quarter of 2025.
At this time, it is not possible to predict with certainty whether,
or when, any of these legislative and regulatory developments will lead to Congress granting additional authorities to the SEC or other
regulators, what the nature of such additional authorities might be, how they might impact the ability of digital asset markets to function
or how any new regulations or changes to existing regulations might impact the value of digital assets generally and bitcoin held by the
Trust specifically. The consequences of increased federal regulation of digital assets and digital asset activities could have a material
adverse effect on the Trust and the Shares.
OFAC has added digital currency addresses to the list of Specially
Designated Nationals whose assets are blocked, and with whom U.S. persons are generally prohibited from dealing. Such actions by OFAC,
or by similar organizations in other jurisdictions, may introduce uncertainty in the market as to whether bitcoin that has been associated
with such addresses in the past can be easily sold. This tainted bitcoin may trade at a substantial discount to untainted
bitcoin. Reduced fungibility in the bitcoin markets may reduce the liquidity of bitcoin and therefore adversely affect its price.
FinCEN requires any administrator or exchanger of convertible digital
assets to register with FinCEN as a money transmitter and comply with the anti-money laundering regulations applicable to money transmitters.
In 2015, FinCEN assessed a $700,000 fine against a sponsor of a digital asset for violating several requirements of the Bank Secrecy Act
by acting as a money services business and selling the digital asset without registering with FinCEN, and by failing to implement and
maintain an adequate anti-money laundering program. In 2017, FinCEN assessed a $110 million fine against BTC-e, a now defunct digital
asset trading platform, for similar violations. The requirement that trading platforms that do business in the U.S. register with FinCEN
and comply with anti-money laundering regulations may increase the cost of buying and selling bitcoin and therefore may adversely affect
the price of bitcoin and an investment in the Shares. In a March 2018 letter from FinCENs assistant secretary for legislative affairs
to U.S. Senator Ron Wyden, the assistant secretary indicated that under current law both the developers and the trading platforms involved
in the sale of tokens in an initial coin offering (ICO) may be required to register with FinCEN as money transmitters and
comply with the anti-money laundering regulations applicable to money transmitters.
Under regulations from the New York State Department of Financial Services
(NYDFS), businesses involved in digital asset business activity for third parties in or involving New York, excluding merchants
and consumers, must apply for a license, commonly known as a BitLicense, from the NYDFS and must comply with anti-money laundering, cybersecurity,
consumer protection, and financial and reporting requirements, among others. As an alternative to a BitLicense, a firm can apply for a
charter to become a limited purpose trust company under New York law qualified to engage in certain digital asset business activities.
Other states have considered or approved digital asset business activity statutes or rules, passing, for example, regulations or guidance
indicating that certain digital asset business activities constitute money transmission requiring licensure.
The inconsistency in applying money transmitting licensure requirements
to certain businesses may make it more difficult for these businesses to provide services, which may affect consumer adoption of bitcoin
and its price. In an attempt to address these issues, the Uniform Law Commission passed a model law in July 2017, the Uniform Regulation
of Virtual Currency Businesses Act, which has many similarities to the BitLicense and features a multistate reciprocity licensure feature,
wherein a business licensed in one state could apply for accelerated licensure procedures in other states. It is still unclear, however,
how many states, if any, will adopt some or all of the model legislation.
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The continued evolution of federal, state and foreign government regulators
and policymakers will continue to impact the viability and success of digital asset markets, broadly, and bitcoin, specifically.
**Future and current regulations by a United States or foreign
government or quasi-governmental agency could have an adverse effect on an investment in the Trust.**
The regulation of bitcoin and related products and services continues
to evolve, may take many different forms and will, therefore, impact bitcoin and its usage in a variety of manners. The inconsistent and
sometimes conflicting regulatory landscape may make it more difficult for bitcoin businesses to provide services, including trading markets
or platforms, which may impede the growth of the bitcoin economy and have an adverse effect on consumer adoption of bitcoin or the ability
to trade bitcoin. Many state and federal agencies have brought enforcement actions or issued consumer advisories regarding the risks posed
by digital assets to investors. There is a possibility of future regulatory change or actions altering, perhaps to a material extent,
the nature of an investment in the Trust or the ability of the Trust to continue to operate.
Additionally, changes to current regulatory determinations of bitcoins
status as not being a security under U.S. federal law, changes to regulations surrounding bitcoin futures or related products, or actions
by a United States or foreign government or quasi-governmental agency exerting regulatory authority over bitcoin, the Bitcoin network,
bitcoin trading, bitcoin mining or related activities impacting other parts of the digital asset market, may adversely impact bitcoin
and therefore may have an adverse effect on the value of your investment in the Trust.
**The Trust is not an investment company registered under the 1940
Act or the Commodity Exchange Act.**
The Trust is not registered as an investment company under the 1940
Act and is not subject to the statutory requirements of the 1940 Act. Further. the Trust will not hold or trade in commodity interests
regulated by the CEA, as administered by the CFTC and that neither the Sponsor nor the Trustee is subject to regulation by the CFTC as
a commodity pool operator or a commodity trading advisor in connection with the operation of the Trust. Consequently, Shareholders will
not have the statutory protections provided to investors in registered investment companies, CEA-regulated instruments or commodity pools.
**Future regulations may require the Trust or the Sponsor to become
registered, which may cause the Trust to liquidate.**
Current and future legislation, SEC and CFTC rulemaking, and other
regulatory developments may impact the manner in which bitcoin are treated for classification and clearing purposes. In particular, bitcoin
in the future may be classified by the CFTC as a commodity interest under the CEA and certain transactions in bitcoin may
be deemed to be commodity futures or bitcoin may be classified by the SEC as a security under U.S. federal securities laws.
In the face of such developments, the required registrations and compliance steps may result in extraordinary, nonrecurring expenses to
the Trust. If the Sponsor decides to terminate the Trust in response to the changed regulatory circumstances, the Trust may be dissolved
or liquidated at a time that is disadvantageous to Shareholders.
The SEC has stated that certain digital assets may be considered securities
under the federal securities laws. The test for determining whether a particular digital asset is a security is complex
and the outcome is difficult to predict. If bitcoin is determined to be a security under federal or state securities laws
by the SEC or any other agency, or in a proceeding in a court of law or otherwise, such a determination may have material adverse consequences
for bitcoin as a digital asset. For example, it may become more difficult for bitcoin to be traded, cleared and custodied as compared
to other digital assets that are not considered to be securities, which could in turn negatively affect the liquidity and general acceptance
of bitcoin and cause users to migrate to other digital assets. Although the SECs new Crypto Task Force has indicated
that it may re-examine how digital assets are considered securities under the federal securities laws, the timeline and
outcome of such action is uncertain at this time.
To the extent that bitcoin is determined to be a security, the Trust
and the Sponsor may also be subject to additional regulatory requirements, including under the 1940 Act, and the Sponsor may be required
to register as an investment adviser under the Investment Advisers Act of 1940. If the Sponsor determines not to comply with such additional
regulatory and registration requirements, the Sponsor will terminate the Trust. Any such termination could result in the liquidation of
the Trusts bitcoin at a time that is disadvantageous to Shareholders.
To the extent that bitcoin is deemed to fall within the definition
of a commodity interest under the CEA, the Trust and the Sponsor may be subject to additional regulation under the CEA and
CFTC regulations. These additional requirements may result in extraordinary, recurring and/or nonrecurring expenses of the Trust, thereby
materially and adversely impacting the Shares. If the Sponsor and/or the Trust determines not to comply with such additional regulatory
and registration requirements, the Sponsor may terminate the Trust. Any such termination could result in the liquidation of the Trusts
bitcoin at a time that is disadvantageous to Shareholders.
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**Regulatory changes or interpretations of an Authorized Participants,
the Trusts or the Sponsors activities could result in extraordinary, recurring and/or nonrecurring expenses to the Authorized
Participant, Trust or Sponsor or increased commissions for the Authorized Participants clients, thereby reducing the liquidity
of the Shares.**
To the extent that the activities of any Authorized Participant, the
Trust or the Sponsor cause it to be deemed a money services business (MSB) under the regulations promulgated
by FinCEN under the authority of the U.S. Bank Secrecy Act, such Authorized Participant, the Trust or the Sponsor may be required to comply
with FinCEN regulations, including those that would mandate the Authorized Participant to implement anti-money laundering programs, make
certain reports to FinCEN and maintain certain records. Similarly, the activities of an Authorized Participant, the Trust or the Sponsor
may require it to be licensed as a money transmitter or as a digital asset business, such as under NYDFSs BitLicense regulation.
Such additional regulatory obligations may cause the Authorized Participant,
the Trust or the Sponsor to incur extraordinary expenses. If the Authorized Participant, the Trust or the Sponsor decide to seek the required
licenses, there is no guarantee that they will timely receive them. The Authorized Participant may also instead decide to terminate its
role as Authorized Participant of the Trust, or the Sponsor may decide to terminate the Trust. Termination by the Authorized Participant
may decrease the liquidity of the Shares, which may adversely affect the value of the Shares, and any termination of the Trust in response
to the changed regulatory circumstances may be at a time that is disadvantageous to the Shareholders.
**Trading on bitcoin platforms outside the United States is not
subject to U.S. regulation, and may be less reliable than U.S. exchanges, and regulatory changes or actions in foreign jurisdictions may
impact the value of Shares.**
To the extent any of the Trusts trading is conducted on bitcoin
platforms outside the U.S., trading on such exchanges is not regulated by any U.S. governmental agency and may involve certain risks not
applicable to trading on U.S. exchanges. Certain foreign markets may be more susceptible to disruption than U.S. exchanges. These factors
could adversely affect the performance of the Trust.
Various foreign jurisdictions have, and may continue to adopt laws,
regulations or directives that affect digital asset networks (including the Bitcoin network), the digital asset markets (including the
bitcoin market), and their users, particularly digital asset platforms and service providers that fall within such jurisdictions
regulatory scope. A number of foreign jurisdictions have recently taken regulatory action aimed at digital asset activities. Foreign laws,
regulations or directives may conflict with those of the United States and may negatively impact the acceptance of one or more digital
assets (including bitcoin) by users, merchants and service providers outside the United States and may therefore impede the growth or
sustainability of the digital asset economy in the European Union, China, Japan, Russia and the United States and globally, or otherwise
negatively affect the value of bitcoin. The effect of any future regulatory change on the Trust or bitcoin is impossible to predict, but
such change could be adverse to the Trust and the value of the Shares.
**The Sponsor may need to find and appoint a replacement custodian
or execution agent quickly, which could pose a challenge to the safekeeping of the Trusts bitcoin and the Trusts ability
to continue to operate may be adversely affected.**
The Trust is dependent on the Bitcoin Custodian and Prime Execution
Agent to operate. The Bitcoin Custodian performs essential functions in terms of safekeeping the Trusts bitcoin in the Vault Balance
and the Prime Execution Agent facilitates the buying and selling or settlement of bitcoin by the Trust in connection with cash creations
and redemptions between the Trust and Authorized Participants, the selling of bitcoin to pay the Sponsors Fee, any other Trust
expenses, to the extent applicable, other Trust expenses, and in extraordinary circumstances, to liquidate the Trusts bitcoin.
The Sponsor could decide to replace the Bitcoin Custodian as the custodian of the Trusts bitcoin or the Prime Execution Agent to
facilitate buying and selling or settlement of bitcoin or the Bitcoin Custodian or Prime Execution Agent could experience issues, exit
the business or terminate its relationship with the Trust. If either entity fails to perform the functions they perform for the Trust,
the Trust may be unable to operate or create or redeem Baskets, which could force the Trust to liquidate or adversely affect the price
of the Shares. Transferring maintenance of any such responsibilities to another party will likely be complex and could subject the Trusts
bitcoin to the risk of loss during the transfer, which could have a negative impact on the performance of the Shares or result in loss
of the Trusts assets.
The Sponsor may not be able to find another party willing to serve
as the custodian or prime execution agent under the same terms as the current applicable agreement. To the extent that Sponsor is not
able to find a suitable party willing to serve as the custodian or prime execution agent, the Sponsor may be required to terminate the
Trust and liquidate the Trusts bitcoin. In addition, to the extent that the Sponsor finds a suitable party but must enter into
a modified servicing agreement that is less favorable for the Trust or Sponsor, the value of the Shares could be adversely affected.
The Sponsor may not be able to find a party willing to serve as the
custodian of the Trusts bitcoin or as the Trusts prime execution agent under the same terms as the current Custodian Agreement
or agreement with prime execution agent or at all. To the extent that Trustee is not able to find a suitable party willing to serve as
the custodian or prime execution agent, it may be necessary to terminate the Trust and liquidate the Trusts bitcoin. In addition,
to the extent that the Sponsor finds a suitable party but must enter into a modified Custodian Agreement or modified agreement with prime
execution agent that is less favorable for the Trust, the value of the Shares could be adversely affected. If the Trust is unable to find
a replacement prime execution agent, its operations could be adversely affected.
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**The Trust Administrator calculates the NAV using the value of
the bitcoin holdings and bitcoin holdings per Share, and any errors, discontinuance or changes in such valuation calculations may have
an adverse effect on the value of the Shares.**
The Trust Administrator calculates the Trusts NAV using the
value of the Trusts bitcoin holdings and bitcoin holdings per Share on a daily basis as soon as practicable after 4:00 p.m. ET
on each business day. The NAV is generally calculated utilizing the Reference Rate, calculated at 4:00 p.m. ET on such day. To the extent
that the bitcoin holdings or bitcoin holdings per Share are incorrectly calculated, the Trust Administrator may not be liable for any
error and such misreporting of valuation data could adversely affect the value of the Shares.
**The value of the Shares will be adversely affected if the Trust
is required to indemnify the Sponsor, the Trustee, the Trust Administrator Transfer Agent, the Bitcoin Custodian or the Cash Custodian
under the Trust documents.**
Under the Trust documents, each of the Sponsor, the Trustee, the Trust
Administrator, the Transfer Agent, the Bitcoin Custodian and the Cash Custodian has a right to be indemnified by the Trust for certain
liabilities or expenses that it incurs without bad faith and/or willful misconduct on its part. Therefore, such obligation(s) may require
that the assets of the Trust be sold in order to cover losses or liability suffered by it. Any sale of that kind would reduce the bitcoin
holdings of the Trust and the value of the Shares.
**Intellectual property rights claims may adversely affect the
Trust and the value of the Shares.**
The Sponsor is not aware of any intellectual property rights claims
that may prevent the Trust from operating and holding bitcoin. However, third parties may assert intellectual property rights claims relating
to the operation of the Trust and the mechanics instituted for the investment in, holding of and transfer of bitcoin. Regardless of the
merit of an intellectual property or other legal action, any legal expenses to defend or payments to settle such claims would be extraordinary
expenses that would be borne by the Trust through the sale or transfer of its bitcoin. Additionally, a meritorious intellectual property
rights claim could prevent the Trust from operating and force the Sponsor to terminate the Trust and liquidate its bitcoin. As a result,
an intellectual property rights claim against the Trust could adversely affect the value of the Shares.
Risk Factors Associated with Taxation
**Shareholders could incur a tax liability without an associated
distribution of the Trust.**
In the normal course of business, it is possible that the Trust could
incur a taxable gain in connection with the sale of bitcoin (including deemed sales of bitcoin as a result of the Trust using bitcoin
to pay its expenses) that is otherwise not associated with a distribution to Shareholders., In the event that purchases and sales of bitcoin
occur, Shareholders may be subject to tax due to the grantor trust status of the Trust even though there is not a corresponding distribution
from the Trust.
**The tax treatment of bitcoin and transactions involving bitcoin
for United States federal income tax purposes may change.**
Current IRS guidance indicates that bitcoin should be treated as property
for U.S. federal income tax purposes and that transactions involving the exchange of bitcoin in return for goods and services should be
treated as barter exchanges. Such guidance allows transactions in bitcoin held for investment to qualify for beneficial capital gains
treatment. However, because bitcoin is a new technological innovation, the U.S. federal income tax treatment of an investment in bitcoin
or in transactions relating to investments in bitcoin, including without limitation the tax treatment of a fork, may evolve and change
from those described in this Annual Report, possibly with retroactive effect. Any such change in the U.S. federal income tax treatment
of bitcoin may have a negative effect on prices of bitcoin and may adversely affect the value of the Shares. In this regard, the IRS has
indicated that it has made it a priority to issue additional guidance related to the taxation of virtual currency transactions, such as
transactions involving bitcoin. While it has started to issue such additional guidance, whether any future guidance will adversely affect
the U.S. federal income tax treatment of an investment in bitcoin or in transactions relating to investments in bitcoin is unknown. Moreover,
future developments that may arise with respect to digital currencies may increase the uncertainty with respect to the treatment of digital
currencies for U.S. federal income tax purposes.
**The tax treatment of bitcoin and transactions involving bitcoin
for state and local tax purposes is not settled.**
Because bitcoin is a new technological innovation, the tax treatment
of bitcoin for state and local tax purposes, including without limitation state and local income and sales and use taxes, is not settled.
It is uncertain what guidance, if any, on the treatment of bitcoin for state and local tax purposes may be issued in the future. A state
or local government authoritys treatment of bitcoin may have negative consequences, including the imposition of a greater tax burden
on investors in bitcoin or the imposition of a greater cost on the acquisition and disposition of bitcoin generally. Any such treatment
may have a negative effect on prices of bitcoin and may adversely affect the value of the Shares.
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Other Risk Factors
**The Exchange on which the Shares are listed may halt trading
in the Trusts Shares, which would adversely impact a Shareholders ability to sell Shares.**
The Trusts Shares are listed for trading on the Exchange under
the market symbol BTCW. Trading in Shares may be halted due to market conditions or, in light of the Exchange rules and
procedures, for reasons that, in the view of the Exchange, make trading in Shares inadvisable. 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. Additionally, there can be no assurance that the requirements necessary to maintain
the listing of the Trusts Shares will continue to be met or will remain unchanged.
**The liquidity of the Shares may also be affected by the withdrawal
from participation of Authorized Participants or other market participants, which could adversely affect the market price of the Shares.**
The Trust has a limited number of financial institutions that may act
as Authorized Participants. In addition, there may be a limited number of market makers and/or liquidity providers in the marketplace.
In the event that one or more Authorized Participants or market makers that have substantial interests in the Trusts Shares withdraw,
step away from participation, or have a business disruption or otherwise become unable or unwilling to participate, in the
purchase (creation) or sale (redemption) of the Trusts Shares, the liquidity of the Shares will likely decrease, which could adversely
affect the market price of the Shares and result in Shareholders incurring a loss on their investment.
**The market infrastructure of the bitcoin spot market could result
in the absence of active Authorized Participants able to support the trading activity of the Trust.**
Bitcoin is extremely volatile, and concerns exist about the stability,
reliability and robustness of many bitcoin platforms. In a highly volatile market, or if one or more bitcoin platforms faces an issue,
it could be extremely challenging for any Authorized Participant to provide continuous liquidity in the Shares. There can be no guarantee
that the Sponsor will be able to find an Authorized Participant to actively and continuously support the Trust.
**Bitcoin platforms are not subject to same regulatory oversight
as traditional equity exchanges, which could negatively impact the ability of Authorized Participants to implement arbitrage mechanisms.**
The trading for bitcoin occurs on multiple trading venues that have
various levels and types of regulation, but are not regulated in the same manner as traditional stock and bond exchanges. If these bitcoin
platforms do not operate smoothly or face technical, security or regulatory issues, that could impact the ability of Authorized Participants
to make markets in the Shares. In such an event, trading in the Shares could occur at a material premium or discount to the NAV.
**Shareholders that are not Authorized Participants may only purchase
or sell their Shares in secondary trading markets, and the conditions and operational risks associated with trading in secondary markets
may adversely affect Shareholders investment in the Shares.**
Only Authorized Participants may create or redeem Baskets. All other
Shareholders that desire to purchase or sell Shares must do so through the Exchange or in other markets, if any, in which the Shares may
be traded. Shares may trade at a premium or discount to the NAV per Share.
Investors in Shares should note that while transferring Shares, specific
risks should be noted. To generally initiate a transfer, a transaction must be signed using the private key of the asset holder. The private
key should remain secret at all times. If the private key is not secured when in use, an asset holder risks their private key being obtained
by third parties, including criminals, and risk losing all or some of their investment.
Platforms are a popular venue for bitcoin investors to store assets
and facilitate transactions with other participants. As with any financial transaction, investors in Shares need to ensure adequate controls
are in place to authenticate themselves on these platforms. Failure to follow security best practices, including multifactor authentication
(MFA), well-formed strong passwords and checks on the validity of platform URLs may risk unauthorized transfer and loss of assets.
**As the Sponsor and its management have limited history of operating
investment vehicles like the Trust, their experience may be inadequate or unsuitable to manage the Trust.**
The past performances of the Sponsors management or affiliates
of the Sponsor in other investment vehicles are no indication of their ability to manage an investment vehicle such as the Trust. If the
experience of the Sponsor and its management is inadequate or unsuitable to manage an investment vehicle such as the Trust, the operations
of the Trust may be adversely affected. Furthermore, management of the Sponsor is currently engaged in the management of, or are otherwise
involved with the operations of, other investment vehicles which could divert their attention and resources.
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**The Sponsor is leanly staffed and relies heavily on key personnel.**
The Sponsor is leanly staffed and relies heavily on key personnel to
manage its activities. These key personnel intend to allocate their time managing the Trust in a manner that they deem appropriate. If
such key personnel were to leave or be unable to carry out their present responsibilities, it may have an adverse effect on the management
of the Sponsor.
**The Trust is new, and if it is not profitable, the Trust may
terminate and liquidate at a time that is disadvantageous to Shareholders.**
The Trust is new. If the Trust does not attract sufficient assets to
remain viable, then the Trust could be terminated and liquidated at the direction of the Sponsor. Termination and liquidation of the Trust
could occur at a time that is disadvantageous to Shareholders. When the Trusts assets are sold as part of the Trusts liquidation,
the resulting proceeds distributed to Shareholders may be less than those that may be realized in a sale outside of a liquidation context.
Shareholders may be adversely affected by redemption or creation orders that are subject to postponement, suspension or rejection under
certain circumstances.
**Shareholders do not have the rights enjoyed by investors in certain
other vehicles and may be adversely affected by a lack of statutory rights and by limited voting and distribution rights.**
The Shares have limited voting and distribution rights. For example,
Shareholders do not have the right to elect directors, the Trust may enact splits or reverse splits without Shareholder approval and the
Trust is not required to pay regular distributions, although the Trust may pay distributions at the discretion of the Sponsor.
**An investment in the Trust may be adversely affected by competition
from other ETFs focused on bitcoin.**
The Trust and the Sponsor face competition with respect to the creation
of competing products. In January 2024, the SEC approved several exchange-traded bitcoin products and the Trust could fail to acquire
substantial assets, initially or at all, or fail to retain acquired assets due to competition and/or market conditions. The Trusts
bitcoin ETF competitors may also charge a substantially lower fee than the Sponsors Fee in order to achieve initial market acceptance
and scale. Accordingly, the Trusts bitcoin ETF competitors may commercialize a competing bitcoin ETF more rapidly or effectively
than the Trust, which could adversely affect the Trusts competitive position and the likelihood that the Trust will achieve initial
market acceptance, and could have a detrimental effect on the scale and sustainability of the Trust. If the Trust fails to achieve sufficient
scale due to competition, the Sponsor may have difficulty raising approximately $450 million in assets which would be sufficient to cover
the costs associated with launching and maintaining the Trust and such shortfalls could impact the Sponsors ability to properly
invest in robust ongoing operations and controls of the Trust to minimize the risk of operating events, errors, or other forms of losses
to the Shareholders. In addition, the Trust may also fail to attract adequate liquidity in the secondary market due to such competition,
resulting in a sub-standard number of Authorized Participants willing to make a market in the Shares, which in turn could result in a
significant premium or discount in the Shares for extended periods and the Trusts failure to reflect the performance of the price
of bitcoin.
**An investment in the Trust may be adversely affected by competition
from other investment vehicles focused on bitcoin or other cryptocurrencies.**
The Trust competes with direct investments in bitcoin, other digital
assets and other potential financial vehicles, possibly including securities backed by or linked to cryptocurrency and other investment
vehicles that focus on other digital assets. Market and financial conditions, and other conditions beyond the Trusts control, may
make it more attractive to invest in other vehicles, which could adversely affect the performance of the Trust. In addition, a failure
of any competitive bitcoin ETF or similar trust or other instrument could have negative consequences with respect to the price of bitcoin
generally or interest in bitcoin ETFs.
**Coinbase serves as the bitcoin custodian and prime execution
agent for several competing exchange-traded bitcoin products, which could adversely affect the Trusts operations and ultimately
the value of the Shares.**
The Prime Execution Agent and Bitcoin Custodian are both affiliates
of Coinbase Global. As of the date hereof, Coinbase Global is the largest publicly traded digital asset company in the world by market
capitalization and is also the largest digital asset custodian in the world by assets under custody. By virtue of its leading market position
and capabilities, and the relatively limited number of institutionally capable providers of digital asset brokerage and custody services,
Coinbase serves as the bitcoin custodian and prime execution agent for several competing exchange-traded bitcoin products and, as such,
plays a critical role in supporting the U.S. spot bitcoin exchange-traded product ecosystem. If Coinbase were to favor the interests of
certain exchange-traded products over others, it could result in inadequate attention or comparatively unfavorable commercial terms to
less favored products, which could adversely affect the Trusts operations and ultimately the value of the Shares, particularly
given the limited number of qualified alternative providers.
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**Authorized Participants serve in a similar capacity on behalf
of several, competing exchange-traded bitcoin products, which could adversely affect the value or availability of the Shares.**
Baskets may be created or redeemed only by Authorized Participants,
but the Authorized Participants are not required or obligated to engage in the creation or redemption of Baskets. The Trust has a limited
number of entities that may act as Authorized Participants, and the Authorized Participants act in a similar capacity for competing exchange-traded
bitcoin products. To the extent one or more Authorized Participants chooses to transact with or favor the interests of certain exchange-traded
bitcoin products over others, or such Authorized Participants exit the business or are unable to proceed with creation or redemption orders
with respect to the Trust and no other Authorized Participant creates or redeems Baskets, the Shares may be more likely to trade at a
premium or discount to NAV and potentially face trading halts or delisting.
**Shareholders cannot be assured of the Sponsors continued
services, the discontinuance of which may be detrimental to the Trust.**
Shareholders cannot be assured that the Sponsor will be able to continue
to service the Trust for any length of time. If the Sponsor discontinues its activities on behalf of the Trust, the Trust may be adversely
affected, as there may be no entity servicing the Trust for a period of time. Such an event could result in termination of the Trust and
a liquidation of its bitcoin.
**Shareholders may be adversely affected by creation or redemption
orders that are subject to postponement, suspension or rejection under certain circumstances.**
The Trust may, in its discretion, suspend the right of creation or
redemption or may postpone the redemption or purchase settlement date, for (1) any period during which an emergency exists as a result
of which the fulfillment of a purchase order or the redemption distribution is not reasonably practicable, or (2) such other period as
the Sponsor determines to be necessary for the protection of the Shareholders of the Trust or if it is not feasible for Shares to be delivered
or the redemption distribution to be made. In addition, the Trust may reject a redemption order if the order is not in proper form as
described in the Authorized Participant Agreement or if the fulfillment of the order might be unlawful as determined by the Sponsor or
its counsel. Any such postponement, suspension or rejection could adversely affect a redeeming Authorized Participant. Suspension of creation
privileges may adversely impact how the Shares are traded and arbitraged on the secondary market, which could cause them to trade at levels
materially different (premiums and discounts) from the fair value of their underlying holdings.
**Shareholders may be adversely affected by an overstatement or
understatement of the NAV calculation of the Trust due to the valuation method employed on the date of the NAV calculation.**
In certain circumstances, the Trusts bitcoin investments may
be valued using techniques other than reliance on the price established by the Reference Rate. The value established by using the Reference
Rate may be different from what would be produced through the use of another methodology. Bitcoin or other digital asset investments that
are valued using techniques other than those employed by the Reference Rate, including bitcoin investments that are fair valued,
may be subject to greater fluctuation in their value from one day to the next than would be the case if market-price valuation techniques
were used.
**The liability of the Sponsor and the Trustee is limited, and
the value of the Shares will be adversely affected if the Trust is required to indemnify the Trustee or the Sponsor.**
Under the Trust Agreement, the Trustee and the Sponsor are not liable,
and have the right to be indemnified, for any liability or expense incurred absent willful misconduct on the part of the Trustee or the
Sponsor or breach by the Sponsor of the Trust Agreement, as the case may be. As a result, the Sponsor may require the assets of the Trust
to be sold in order to cover losses or liability suffered by it or by the Trustee. Any sale of that kind would reduce the NAV of the Trust
and the value of its Shares.
**Extraordinary expenses resulting from unanticipated events may
become payable by the Trust, adversely affecting an investment in the Shares.**
Extraordinary expenses of the Trust (for example, expenses relating
to litigation) are not assumed by the Sponsor and are instead borne by the Trust and paid through the sale of the Trusts bitcoins.
Because the Trust does not generate any income, every time that it delivers bitcoins to the Sponsor for the Sponsor Fee or sells bitcoins
for expenses such as extraordinary expenses, the number of bitcoins represented by each Share will gradually decrease over time. In addition,
the Sponsor may, in its sole discretion, increase the Sponsor Fee or decrease the Sponsor-paid expenses which could result in a greater
decline in the number of bitcoins that the Trust holds. Such changes could occur if the expenses of the Trust materially increase. For
example, while the current Sponsor Fee is a unitary fee in which the Sponsor agrees to pay all the fee of the Trusts service providers
(except for extraordinary expenses), the Sponsor may unwind part of this unitary fee and have a service providers (*e.g.*,
custodians fee) charged directly to the Trust. In that case, the Sponsor would provide 60 days advance notice to Shareholders
via a posting on the Trusts website, prospectus supplement, post-effective amendment, through a current report on Form 8-K or in
the Trusts annual or quarterly reports.
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**Third parties may infringe upon or otherwise violate intellectual
property rights or assert that the Sponsor has infringed or otherwise violated their intellectual property rights, which may result in
significant costs and diverted attention.**
It is possible that third parties might utilize the Trusts intellectual
property or technology, including the use of its business methods and trademarks, without permission. However, the Trust may not have
adequate resources to implement procedures for monitoring unauthorized uses of their trademarks, proprietary software and other technology.
Also, third parties may independently develop business methods, trademarks or proprietary software and other technology similar to that
of the Trust or claim that the Trust has violated their intellectual property rights, including their copyrights, trademark rights, trade
names, trade secrets and patent rights. As a result, the Trust may have to litigate in the future to protect its trade secrets, determine
the validity and scope of other parties proprietary rights, defend itself against claims that it has infringed or otherwise violated
other parties rights, or defend itself against claims that its rights are invalid. Any litigation of this type, even if the Trust
is successful and regardless of the merits, may result in significant costs, divert its resources from the Trust, or require it to change
its proprietary software and other technology or enter into royalty or licensing agreements.
**Due to the increased use of technologies, intentional and unintentional
cyber-attacks pose operational and information security risks.**
With the increased use of technologies such as the internet and the
dependence on computer systems to perform necessary business functions, the Trust is susceptible to operational and information security
risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited
to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data,
or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access,
such as causing denial-of-service attacks on websites. Cyber security failures or breaches of one or more of the Trusts service
providers (including, but not limited to, the Sponsor, Trust Administrator, Transfer Agent, the Bitcoin Custodian and the Cash Custodian),
as well as Authorized Participants and market makers, have the ability to cause disruptions and impact business operations, potentially
resulting in financial losses, the inability of the Shareholders to transact business, violations of applicable privacy and other laws,
regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs.
In addition, substantial costs may be incurred in order to prevent
any cyber incidents in the future. The Trust and its Shareholders could be negatively impacted as a result. While the Trust has established
business continuity plans, there are inherent limitations in such plans.
**The Trust and its service providers are subject to certain operational
risks.**
The Trust and its service providers, including the Sponsor, Trust Administrator,
Transfer Agent, Bitcoin Custodian and Cash Custodian (as well as Authorized Participants and market makers) may experience disruptions
that arise from human error, processing and communications errors, counterparty or third-party errors, or technology or systems failures,
any of which may have an adverse impact on the Trust. Although the Trust and its service providers seek to mitigate these operational
risks through their internal controls and operational risk management processes, these measures may not identify or may be inadequate
to address all such risks.
**The Trust Agreement includes a provision that restricts the right
of a beneficial owner of a statutory trust from bringing a derivative action.**
Under Delaware law, the right of a beneficial owner of a statutory
trust (such as a Shareholder of the Trust) to bring a derivative action (*i.e.*, to initiate a lawsuit in the name of a the statutory
trust in order to assert a claim belonging to the statutory trust against a fiduciary of the statutory trust or against a third-party
when the statutory trusts management has refused to do so) may be restricted by the terms of the governing instrument of the statutory
trust. The Trust Agreement provides that in addition to any other requirements of applicable law, no Shareholder shall have the right,
power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of the Trust unless two or more Shareholders
who (i) are not affiliates of one another and (ii) collectively hold at least 10% of the outstanding Shares join in the bringing or maintaining
of such action, suit or other proceeding.
Due to this additional requirement, a Shareholder attempting to bring
or maintain a derivative action in the name of the Trust will be required to locate at least one other Shareholder with which it is not
affiliated and together have sufficient Shares to meet the 10% threshold based on the number of Shares outstanding on the date the claim
is brought and thereafter throughout the duration of the action, suit or proceeding. This may be difficult and may result in increased
costs to a Shareholder attempting to seek redress in the name of the Trust in court. Moreover, if Shareholders bringing a derivative action,
suit or proceeding pursuant to this provision of the Trust Agreement do not hold 10% of the outstanding Shares on the date such an action,
suit or proceeding is brought, or such Shareholders are unable to maintain Share ownership meeting the 10% threshold throughout the duration
of the action, suit or proceeding, such Shareholders derivative action may be subject to dismissal. As a result, the Trust Agreement
limits the likelihood that a Shareholder will be able to successfully assert a derivative action in the name of the Trust, even if such
Shareholder believes that he or she has a valid derivative action, suit or other proceeding to bring on behalf of the Trust.
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**Pandemics and other public health crises could have a material
adverse effect on the Trusts business and financial condition.**
Pandemics and other public health crises may cause a curtailment of
business activities which may potentially impact the ability of the Sponsor and its service providers to operate. Such events also could
adversely impact the Trust by causing operating delays and disruptions, market disruption and shutdowns (including as a result of government
regulation and prevention measures). The COVID-19 pandemic, for example, had substantive effects on social, economic and financial systems,
including significant uncertainty and volatility in the financial market.
**ITEM 1B. UNRESOLVED STAFF COMMENTS**
None.
**ITEM 1C. CYBERSECURITY**
**Cybersecurity Risk Management and Strategy**
The Trust does not have any officers, directors
or employees. The Sponsor, a subsidiary of WisdomTree, Inc., is responsible for the oversight and overall management of the Trust. The
Sponsor relies on WisdomTree Inc.s cybersecurity framework for the Trusts cybersecurity risk management and strategy. Key
aspects of such framework are summarized below.
WisdomTree Inc.s enterprise-wide cybersecurity
risk management policies and procedures are informed by industry standards, and they are designed to address cybersecurity risks identified
by external auditors and assessors, threat intelligence providers, internal stakeholders, vulnerability management programs and security
management programs. WisdomTree Inc.s team of information technology and cybersecurity professionals, led by its Chief Information
Officer, or CIO, manages and maintains remediation strategies for identified cybersecurity risks.
WisdomTree Inc.s cybersecurity risk
management program is designed to be aligned with its business strategy. It shares common methodologies, reporting channels and governance
processes that apply to other areas of enterprise risk, including legal, compliance, strategic, operational and financial risk.
**Governance Related to Cybersecurity Risks**
The cybersecurity risk management program
and related operations and processes are directed by WisdomTree Inc.s CIO. Currently, the CIO role is held by an individual who
has been in the role for over ten years, has over 24 years of cybersecurity, information technology and systems engineering experience,
and has advanced training in the field of technology.
The CIO is a member of WisdomTree, Inc.s
Governance Committee and regularly reports on cybersecurity risk management to other members of the Governance Committee comprised of
WisdomTree Inc.s senior executive officers. The Governance Committee oversees the prioritization and escalation of risks from cybersecurity
threats and is responsible for strategy, operations, financial management, information technology, compliance, legal, administration and
corporate governance. The members of the Governance Committee collectively possess experience in these areas, including cybersecurity
and risk management.
The audit committee of WisdomTree, Inc. (the
Audit Committee) oversees the management of cybersecurity risks. Pursuant to the Audit Committee charter, the Audit Committee
is responsible for discussing cybersecurity-related risks with management and the steps management has taken to monitor and control such
risks, including WisdomTree Inc.s risk assessment and risk management policies. The CIO regularly reports to the Audit Committee
on cybersecurity risks, and the chair of the Audit Committee reports on these discussions with the full board of directors of WisdomTree,
Inc. In addition, the CIO provides periodic reports to the board of directors.
As of December 31, 2025, cybersecurity risks have not materially affected
the Trusts business strategy, results of operations or financial condition. However, the Trust can provide no assurance that there
will not be cybersecurity threats or incidents in the future or that they will not materially affect the Trust. For more information
regarding the risks the Trust faces from cybersecurity threats, see Item 1A. Risk Factors included in this report.
**ITEM 2. PROPERTIES**
Not applicable.
| | 61 | | |
| | |
**ITEM 3. LEGAL PROCEEDINGS**
None.
**ITEM 4. MINE SAFETY DISCLOSURES**
Not applicable.
| | 62 | | |
| | |
**PART II**
**ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES**
**Market Information**
On January 11, 2024, the Shares commenced trading on Cboe BZX Exchange,
Inc. under the ticker symbol BTCW.
**Holders**
As of February 28, 2026, there were approximately fifty-seven (57)
DTC participating shareholders of record of the Trust. Because all of the Trusts Shares are held by brokers and other institutions
or intermediaries on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
**Dividends**
The Trust has no record of paying cash dividends and has no intention
to pay cash dividends in the foreseeable future.
**Recent Sales of Unregistered Securities; Use of Proceeds From Registered
Securities**
WisdomTree, Inc., the parent of the Sponsor, purchased: (i) 1,000 Shares
at a price per Share of $50 on December 22, 2023 for proceeds of $50,000, and (ii) 49,000 Shares at a price per Share of $50 on January
8, 2024 for proceeds of $2,450,000, for a total of $2,500,000. On December 16, 2024, 50,000 shares were sold for proceeds $5,637,003.
The issuance of such Shares was effected in reliance upon an exemption from registration provided by Section 4(a)(2) of the 1933 Act.
On January 10, 2024, the Trusts registration statement on Form S-1/A (File No. 333-254134) was declared effective pursuant to which
the Trust registered an unlimited number of Shares. As of December 31, 2025, WisdomTree Inc. did not own any outstanding Shares of the
Trust.
(a) There have been no unregistered sales of the Shares.
No Shares are authorized for issuance by the Trust under equity compensation plans.
(b) Not applicable.
(c) Although the Trust did not redeem Shares directly from
its Shareholders, the Trust redeemed Creation Units from Authorized Participants during the three months ended December31, 2025
as follows:
|
Period of Redemption | | |
Total Number of Shares Redeemed | | |
Average Price Paid per Share | | |
|
October 1, 2025 to October 31, 2025 | | |
| | | |
$ | | | |
|
November 1, 2025 to November 30, 2025 | | |
| 60,000 | | |
| 100.43 | | |
|
December 1, 2025 to December 31, 2025 | | |
| | | |
| | | |
|
Total | | |
| 60,000 | | |
$ | 100.43 | | |
The Trust seeks to use substantially all of the proceeds of the offering
of Shares to make investments in bitcoin in a manner consistent with the Trusts investment objective.
**Purchases of Equity Securities by the Issuers and Affiliated Purchaser**
None.
**ITEM 6. RESERVED**
| | 63 | | |
| | |
**ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS**
*The following discussion and analysis of our financial condition
and results of operations should be read together with, and is qualified in its entirety by reference to, our audited financial statements
and related notes included elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting
principles in the United States. The following discussion may contain forward-looking statements based on assumptions we believe to be
reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause
or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report, particularly
in Item 1A. Risk Factors and Forward-Looking Statements..*
**Overview / Introduction**
WisdomTree Bitcoin Fund (the Trust) is an exchange-traded
fund that issues common shares of beneficial interest that are listed on the Cboe BZX Exchange, Inc. and which began trading under the
ticker symbol BTCW on January 11, 2024. The Trust is a Delaware statutory trust, formed on March 8, 2021, pursuant to the
Delaware Statutory Trust Act. The Trust operates pursuant to the Trust Agreement. The Trust offers Shares only to Authorized Participants
in one or more blocks of 5,000 Shares based on the quantity of bitcoin attributable to each Share of the Trust. Each Share represents
a fractional undivided beneficial interest in the net assets of the Trust.
The Trusts investment objective is to gain exposure to the price
of bitcoin, less expenses and liabilities of the Trusts operations. In seeking to achieve its investment objective, the Trust will
hold bitcoin and will value its Shares daily based on the CME CF Bitcoin Reference Rate - New York Variant (the Reference Rate).
**Net Asset Value**
The Trusts NAV per Share is calculated by:
|
| taking the current market value of its total assets including, but not limited to, all bitcoin, cash or other assets; | |
|
| subtracting any liabilities; and | |
|
| dividing that total by the total number of outstanding Shares. | |
The methodology of the Reference Rate used to value bitcoin for purposes
of calculating NAV Per Share may not be deemed consistent with generally accepted accounting principles in the U.S. (GAAP).
To the extent the methodology used to calculate the Reference Rate is deemed not to be consistent with GAAP, the Trust will utilize an
alternative GAAP-consistent pricing source for purposes of the Trusts periodic financial statements, as further discussed below.
The Trust Administrator calculates the NAV of the Trust once each Exchange
trading day. The NAV for a normal trading day will be released after 4:00 p.m. ET. Trading during the core trading session on the Exchange
typically closes at 4:00 p.m. ET. However, NAVs are not officially struck until later in the day (often by 5:30 p.m. ET and almost always
by 8:00 p.m. ET).
The Sponsor believes that the Reference Rate will be reflective of
a reasonable valuation of the average spot price of bitcoin. However, in the event the Reference Rate was not available or determined
by the Sponsor to not be reliable, the Sponsor would fair value the Trusts bitcoin holdings. The Sponsor does not
anticipate that the need to fair value bitcoin will be a common occurrence. The Sponsor reserves the right to replace the
Reference Rate with another valuation methodology which it believes will accurately track the price of bitcoin. If the Sponsor makes the
decision to materially change the valuation methodology or replace either the Reference Rate or the Benchmark Administrator, the Sponsor
will notify Shareholders via a posting on the Trusts website, prospectus supplement, post-effective amendment, through a current
report on Form 8-K or in the Trusts annual or quarterly reports.
The Sponsor publishes the NAV, NAV per Share and the Trusts
bitcoin holdings at www.wisdomtree.com/investments after their determination and availability. Reference Rate data and the description
of the Reference Rate are based on information made publicly available by the Benchmark Administrator on its website at https://www.cfbenchmarks.com.
As of December 31, 2025 (the last business day), the Trust had a net
closing balance of 1,598.2538 bitcoins with a value of $139,552,377 based on the Reference Rate Price of $87,315.53, which is calculated
pursuant to non-GAAP methodology. As of December 31, 2025, the total market value of the Trust's bitcoin was $139,717,030, based on the
price of a bitcoin in the principal market of $87,418.55. For the twelve-month period ended December 31, 2025, the Trust determined that
Coinbase was its principal market.
| | 64 | | |
| | |
The following chart illustrates the movement in the Market Price per
Share and the Trust's NAV per Share for the fiscal year ended December 31, 2025.
*
The table below illustrates the high and low price
of bitcoin as represented by the Reference Rate and the principal market during the period ended December 31, 2025.
|
|
High |
|
Low |
|
End of Period | |
|
Period |
Reference
Rate Price |
Principal
Market Price |
Date |
|
Reference
Rate Price |
Principal
Market Price |
Date |
|
Reference
Rate Price+ |
Principal
Market Price | |
|
For the fiscal year ended December 31, 2025 |
$125,663.20 |
$124,387.25 |
10/6/25 |
|
$76,737.31 |
$75,012.31 |
4/8/25 |
|
$87,315.53 |
$87,418.55 | |
+ The Reference Rate Price shown is as of the last business day during the period.
**Liquidity**
The Trust is not aware of any trends, demands, conditions or events
that are reasonably likely to result in material changes to its liquidity needs. The Trust will pay the Sponsor a unified fee of 0.25%
per annum (the Sponsor Fee) as compensation for services performed under the Trust Agreement. The Trusts only ordinary
recurring expense is expected to be the Sponsor Fee. The Sponsor previously waived the entire Sponsor Fee on the first $1 billion of Trust
assets for the 6-month period commencing on the day the Trusts Shares were initially listed on the Exchange. Effective July 11,
2024, this waiver expired, and the Sponsor is no longer waiving the Sponsor Fee.
The Sponsor Fee is calculated on a daily basis (accrued at 1/365, or
1/366 in a leap year, of the applicable annual Sponsor Fee percentage multiplied by the Trusts NAV) and paid on a monthly basis.
To cover the Sponsors Fee, and extraordinary expenses not assumed by the Sponsor, the Sponsor or its delegate will cause the Trust
(or its delegate) to instruct the Execution Agent to convert bitcoin held by the Trust into U.S. dollars. Because the Trust does not have
any income, it will need to sell bitcoin to cover the Sponsors Fee and expenses not assumed by the Sponsor, if any. The Trust may
also be subject to other liabilities (for example, as a result of litigation) that have also not been assumed by the Sponsor. The only
source of funds to cover those liabilities are sales of bitcoin held by the Trust. Even if there are no expenses other than those assumed
by the Sponsor, and there are no other liabilities of the Trust, the Trust will still need to sell bitcoin to pay the Sponsors Fee. The
result of these sales is a decrease in the amount of bitcoin represented by each Share.
| | 65 | | |
| | |
To cover the Sponsors Fee and expenses not assumed by the Sponsor,
the Sponsor or its delegate will cause the Trust (or its delegate) to convert bitcoin into U.S. dollars at the price available through
the Prime Execution Agent. The number of bitcoins represented by a Share will decline each time the Trust pays the Sponsor Fee or any
Trust expenses not assumed by the Sponsor by transferring or selling bitcoins. The Trust is responsible for paying any costs associated
with the transfer of bitcoin to the Sponsor or the sale of bitcoin. However, under the terms of each Authorized Participant Agreement,
the Authorized Participants will be responsible for any brokerage or transaction costs associated with the sale or transfer of bitcoin
incurred in connection with the fulfillment of a creation or redemption order.
The Trusts only ordinary recurring expense is expected to be
the Sponsor Fee. In exchange for the Sponsors Fee, the Sponsor has agreed to assume the marketing and the following administrative
expenses of the Trust: the fees of the Trustee, the Trust Administrator, Fund Accountant, Transfer Agent, and Marketing Agent, the Custodians
Fee, Exchange listing fees, SEC registration fees, printing and mailing costs, tax reporting fees, audit fees, license fees and ordinary
legal fees and expenses. There is no cap on the amount of these Sponsor paid expenses.
The Trust may incur certain non-recurring expenses that are not assumed
by the Sponsor, including but not limited to, taxes and governmental charges, any applicable brokerage commissions, financing charges
or fees, Bitcoin network fees and similar transaction fees, expenses and costs of any extraordinary services performed by the Sponsor
(or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders (including, for example,
in connection with any fork of the Bitcoin blockchain), any indemnification of the Cash Custodian, Bitcoin Custodian, Trust Administrator
or other agents, service providers or counterparties of the Trust and extraordinary legal fees and expenses, including any legal fees
and expenses incurred in connection with litigation, regulatory enforcement or investigation matters.
The Trust has not entered into any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on the Trusts financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to
Shareholders. The Trusts only source of liquidity is its sales of bitcoin.
**Results of Operations**
**Selected Financial Highlights for the Fiscal Year ended December
31, 2025 and the Fiscal Year ended December 31, 2024**
|
| |
For the Fiscal Year ended December 31, 2025 | | |
For the Fiscal Year ended December 31, 2024 | | |
|
Net investment loss | |
$ | (515,401 | ) | |
$ | (290,625 | ) | |
|
Net realized and unrealized gain (loss) on investment in bitcoin | |
$ | (36,154,047 | ) | |
$ | 128,766,609 | | |
|
Net increase (decrease) in net assets resulting from operations | |
$ | (36,669,448 | ) | |
$ | 128,475,984 | | |
|
Net assets | |
$ | 139,686,992 | | |
$ | 360,517,232 | | |
Net realized and unrealized loss on investment
in bitcoin for the fiscal year ended December 31, 2025 was $(36,154,047) which includes a net decrease in unrealized appreciation on investment
in bitcoin of $(94,408,359). The net realized and unrealized loss on investment in bitcoin for the fiscal year ended December 31, 2025
was driven by bitcoin price depreciation from $93,358.58 per bitcoin as of December 31, 2024 to $87,418.55 per bitcoin as of December
31, 2025. Net decrease in net assets resulting from operations was $(36,669,448) for the fiscal year ended December 31, 2025 which consisted
of net investment loss of $(515,401), net realized gain of $58,254,312 and a $(94,408,359) net decrease in unrealized appreciation on
investment in bitcoin. Net assets decreased to $139,686,992 at December 31, 2025 and total return (based on NAV per Share) for the twelve-month
period was (6.59)%. For the fiscal year ended December 31, 2025, the $(220,830,240) net decrease in net assets resulted from the aforementioned
bitcoin price depreciation, net investment loss, net realized gain and by $(184,160,792) of net decrease resulting from capital share
transactions.
Net realized and unrealized gain on investment
in bitcoin for the fiscal year ended December 31, 2024 was $128,766,609 which includes a net increase in unrealized appreciation on investment
in bitcoin of $127,561,373. Increase in net realized and unrealized gain on investment in bitcoin for the fiscal year ended December 31,
2024 was driven by bitcoin price appreciation from $46,411.68 per bitcoin as of January 10, 2024 (the end of day price prior to the commencement
of operations) to $93,358.58 per bitcoin as of December 31, 2024. Net increase in net assets resulting from operations was $128,475,984
for the fiscal year ended December 31, 2024 which consisted of net investment loss of $(290,625), net realized gains of $1,205,236 and
a $127,561,373 net increase in unrealized appreciation on investment in bitcoin. Net assets increased to $360,517,232 at December 31,
2024 and total return (based on NAV per Share) for the fiscal year was 98.08%. For the fiscal year ended December 31, 2024, the $360,467,232
net increase in net assets resulted from the aforementioned bitcoin price appreciation, net investment loss, net realized gain and by
$231,991,248 of net increase resulting from capital share transactions.
**Performance Summary**
For the fiscal year ended December 31, 2025, the
Exchange market value of each Share decreased from $98.65 per Share to $92.68 per Share. The Share price low and high for the fiscal year
ended December 31, 2025 and related change from the Share price on December 31, 2024 was as follows: Shares traded at a low of $81.29
per Share (-17.60%) on April 8, 2025, and a high of $132.96 per Share (+34.78%) on October 6, 2025. For the fiscal year ended December
31, 2025, the total return for the Trust on a market value basis was -6.05%.
| | 66 | | |
| | |
Bitcoin ended 2025 in negative territory despite
strong gains during the second and third quarters. After a weak first quarter-driven by macroeconomic worries, deteriorating investor
sentiment, heavy outflows from crypto ETPs, and the ByBit hack, bitcoin staged a robust recovery mid-year. Improving risk appetite and
renewed institutional demand accelerated ETP inflows, and a series of U.S. legislative developments, including progress on the CLARITY
Act, GENIUS Act, Anti-CBDC Surveillance Act, and an executive order permitting crypto in retirement accounts served as tailwinds for digital
assets. Additional support came from Federal Reserve rate cuts and rising uncertainty around the potential U.S. government shutdown. However,
the fourth quarter pared these gains. A broad risk-off environment took hold as hawkish Federal Reserve signals emerged ahead of the December
rate cut, compounded by the U.S. government shutdown, widespread forced liquidations of leveraged positions, and technical breakdowns
as bitcoin failed to hold key support levels. Market sentiment deteriorated sharply and spot crypto ETPs posted record outflows in November,
as the Crypto Fear & Greed Index plunged into extreme fear.
For the period January 11, 2024 (commencement
of trading) to December 31, 2024, the Exchange market value of each Share increased from $49.32 per Share to $98.65 per Share. The Share
price low and high for the period ended December 31, 2024 and related change from the Share price on January 11, 2024 was as follows:
Shares traded at a low of $41.65 per Share (-15.55%) on January 23, 2024, and a high of $113.42 per Share (+129.97%) on December 17, 2024.
For the fiscal period ended December 31, 2024, the total return for the Trust on a market value basis was +100.02%.
For the period January 11, 2024, through December 31, 2024, bitcoins
(BTC) spot price rallied 103%, leading to strong gains for the Trust. The rally was initially driven by spot bitcoin ETP demand following
their historic launch on January 11, 2024, improving macroeconomic sentiment supporting investor risk appetite, and the anticipation leading
up to the April 2024 bitcoin halving event, which has historically provided upside potential for BTC. However, after BTC hit a record
high of $73,000 in March 2024, prices trended lower until the end of the third quarter. The third quarter was a positive quarter for BTC
as the kickoff of the Federal Reserve interest rate easing cycle and increased chances of a crypto-supportive administration fueled the
bullish sentiment around cryptocurrencies. However, more than half of 2024s gains were posted in the fourth quarter, following
the results of the U.S. presidential election. As part of his campaign for re-election, President Trump indicated that he would be a crypto
president, and he also touted major plans for the digital assets industry that, if implemented, could lead to significant regulatory
progress, increased institutional adoption, and formal legitimization of the asset class in traditional finance, all of which would support
prices.
**Critical Accounting Estimates**
Fair Value Determination*
The Reference Rate used to determine the net
asset value of the Trust may not be consistent with GAAP. The Trusts periodic financial statements are prepared in accordance with
GAAP, including the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 820, *Fair Value
Measurements and Disclosures* (ASC 820) and utilizes a platform-traded price from the Trusts principal market
for bitcoin on the Trusts financial statement measurement date. The Sponsor determines in its sole discretion the valuation sources
and policies used to prepare the Trusts financial statements in accordance with GAAP. The Trust obtains a price from a principal
market (or in the absence of a principal market, the most advantageous market) for bitcoin, which may be through a third-party vendor
or directly from such principal market. ASC 820 defines principal market as the market with the greatest volume and level
of activity for the asset or liability. The determination of the principal market (and, as a result, the market participants in the principal
market) is made from the perspective of the reporting entity and the reporting entity must have access to the principal (or most advantageous)
market at the measurement date. ASC 820 defines most advantageous market as the market that maximizes the amount that would
be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction
costs and transportation costs.
To determine which market is the Trusts
principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trusts
financial statements, the Trust follows ASC 820-10, which outlines the application of fair value accounting. ASC 820-10 determines fair
value to be the price that would be received for bitcoin in a current sale, which assumes an orderly transaction between market participants
on the measurement date. ASC 820-10 requires the Trust to assume that bitcoin is sold in its principal market to market participants or,
in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal
or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust may transact through bitcoin
trading counterparties, in multiple markets, and its application of ASC 820-10 reflects this fact. The Trust anticipates that, while multiple
venues and types of markets will be available to the bitcoin trading counterparties from whom the Sponsor acquires or disposes of the
Trusts bitcoin, the principal market in each scenario is determined by looking at the market-based level of volume and bitcoin
trading activity and whether the Trust has access to that market. Bitcoin trading counterparties, may transact in a Brokered Market, a
Dealer Market, Principal-to-Principal Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary. Based on information
reasonably available to the Trust, Exchange Markets have the greatest volume and level of activity for the asset. The Trust therefore
looks to accessible Exchange Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine
its principal market. As a result of the aforementioned analysis, an Exchange Market has been selected as the Trusts principal
market. The Trust determines its principal market (or in the absence of a principal market, the most advantageous market) on a quarterly
basis to determine which market is its Principal Market for the purpose of calculating fair value for the preparation of quarterly and
annual financial statements.
| | 67 | | |
| | |
The Sponsor has developed a process for identifying
a principal market, as prescribed in ASC 820-10, which outlines the application of fair value accounting. The process begins by identifying
publicly available, well established and reputable bitcoin trading venues or platform markets, which are selected by the Sponsor and its
affiliates in their sole discretion. Those markets include, but are not limited to, the Constituent Bitcoin Platforms used to calculate
the Reference Rate. The Sponsor then, through a service provider, calculates on each valuation period, the highest volume venue during
the 60-minute period prior to 4:00 ET for bitcoin and determines whether the Trust has access to that market venue. The Sponsor then identifies
that market as the principal market for bitcoin during that period, and uses the price for bitcoin from that venue at 11:59 p.m. ET as
the principal market price.
To the extent there are any determinations
that the Sponsor and the Trust Administrator make, such determinations will be made in good faith, and neither the Sponsor nor the Trust
Administrator will be liable for any errors contained therein. Neither the Sponsor nor the Trust Administrator will be liable to DTC,
Authorized Participants, the Shareholders or any other person for errors in judgment.
**Market Risk**
See section 1A - Risk Factors for a discussion of market risk.
****
**Credit Risk**
The Trust holds one type of investment - bitcoin. To avoid having to
pre-fund purchases or sales of bitcoin in connection with cash creations and redemptions and sales of bitcoin to pay the Sponsors
Fee and any other Trust expenses not assumed by the Sponsor, to the extent applicable, the Trust may acquire Trade Credits from Coinbase
Credit, Inc. (the Trade Credit Lender) on a short-term basis pursuant to the Coinbase Trade Financing Agreement (the Trade
Financing Agreement). The Trust generally must repay Trade Credits by 6:00 p.m. ET (the Settlement Deadline) on the
calendar day immediately following the day the Trade Credit was extended by the Trade Credit Lender to the Trust (or, if such day is not
a business day, on the next business day). Pursuant to the Trade Financing Agreement, the Trust has granted a security interest, lien
on, and right of set off against all of the Trusts right, title and interest, in the Trusts Trading Balance and Vault Balance
established pursuant to the Prime Execution Agent Agreement and Custodian Agreement, in order to secure the repayment by the Trust of
the Trade Credits and financing fees to the Trade Credit Lender. If the Trust fails to repay the Trade Credits to the Trade Credit Lender
on time and in full, the Trade Credit Lender can take control of the Trusts assets and liquidate them to repay the Trade Credit
debt owed by the Trust to the Trade Credit Lender.
****
**Trading and Other Risks**
See section 1A - Risk Factors for a discussion of trading and other
related risks.
**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
Not applicable.
**ITEM 8. FINANCIAL STATEMENTS**
See Index to Financial Statements on page F-1 for a list of the financial
statements being filed therein.
**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE**
None.
**ITEM 9A. CONTROLS AND PROCEDURES**
**Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures**
The Trust maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Principal
Executive Officer and Principal Financial Officer of the Sponsor to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of the Principal
Executive Officer and the Principal Financial Officer of the Sponsor, the Sponsor conducted an evaluation of the Trusts
disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e) and 15d-15(e). Based on this evaluation, the Principal Executive
Officer and the Principal Financial Officer of the Sponsor concluded that, as of December 31, 2025, the Trusts disclosure
controls and procedures were effective.
| | 68 | | |
| | |
**Managements Report on Internal Control over Financial Reporting;
Attestation Report of the Registered Public Accounting Firm**
The Trusts management is responsible for
establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. The Trusts internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation
of the Principal Executive Officer and the Principal Financial Officer of the Sponsor, the Sponsor conducted an evaluation of the effectiveness
of the Trusts internal control over financial reporting as of December 31, 2025, based on the framework in "Internal Control-Integrated
Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation,
the Principal Executive Officer and the Principal Financial Officer of the Sponsor concluded that, as of December 31, 2025, the Trusts
disclosure controls and procedures were effective.
**Changes in Internal Control Over Financial Reporting**
There was no change in the Trusts internal controls over financial
reporting that occurred during the Trusts most recently completed fiscal quarter ended December 31, 2025 that has materially affected,
or is reasonably likely to materially affect, these internal controls.
**ITEM 9B. OTHER INFORMATION**
None.
**ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS**
Not applicable.
| | 69 | | |
| | |
**PART III**
**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE**
The Trust does not have any directors, officers or employees. The Sponsor
has arranged for the creation and operation of the Trust.
The following persons serve in the below capacities on behalf of the
Sponsor:
|
Name
and Year of Birth |
|
Position(s) Held with
the Sponsor |
|
Length of
Time Served |
|
Principal Occupation(s)
During the Past Five Years | |
|
Jeremy Schwartz (1981) |
|
Chief Executive Officer |
|
March 2021-Present |
|
Global Chief Investment Officer for WisdomTree since 2021; Global Head of Research from 2018 to 2021. | |
|
David Castano (1971) |
|
Chief Financial Officer and Treasurer |
|
March 2021-Present |
|
Head of Fund Accounting & Administration, WisdomTree Asset Management, Inc. since 2020. | |
|
Joanne Antico (1975) |
|
Chief Legal Officer and Secretary |
|
January 2026-Present |
|
General Counsel at WisdomTree Asset Management since 2021; Assistant General Counsel at WisdomTree Asset Management from 2016 to 2021. | |
The Sponsor has a code of conduct (the Code of Conduct)
that applies to those personnel of the Sponsor whose regular functions or duties involve making, participating in, or obtaining information
regarding the purchase or sale of bitcoin by the Trust, and requires pre-clearance of transactions in bitcoin by such persons in excess
of certain de minimis amounts. The Code of Conduct is filed as Exhibit 14.1 to this Annual Report on Form 10-K and is available free of
charge upon written request sent to the Sponsor at 250 West 34th Street, 3rd Floor, New York, NY 10119.
The Trust has no employees, officers, or directors and is managed by
the Sponsor, which is a subsidiary of WisdomTree, Inc. WisdomTree, Inc. has adopted an Insider Trading policy, which applies to all of
its employees, its subsidiaries, and itself. The Sponsor believes that its Insider Trading Policy is reasonably designed to promote compliance
with insider trading laws, rules and regulations with respect to the purchase, sale and/or other dispositions of securities, including
Shares of the Trust, as well as the applicable rules and regulations of the Exchange. A copy of the Insider Trading Policy is filed as
Exhibit 19.1 to this Annual Report on Form 10-K.
**ITEM 11. EXECUTIVE COMPENSATION**
The Trust has no employees, officers or directors and is managed by
the Sponsor. None of the directors or officers of the Sponsor receive compensation from the Trust. The Trust pays the Sponsor a Sponsor
Fee of 0.25% per annum of the Trusts average daily net assets. The Sponsor Fee is calculated on a daily basis (accrued at 1/365,
or 1/366 in a leap year, of the applicable Sponsor Fee percentage multiplied by the Trusts NAV) and paid on a monthly basis. The
Sponsor previously waived the entire Sponsor Fee on the first $1 billion of Trust assets for the 6-month period commencing on the day
the Trusts Shares were initially listed on the Exchange. Effective July 11, 2024, this waiver expired, and the Sponsor is no longer
waiving the Sponsor Fee. The Sponsor may, in its sole discretion and from time to time, waive all or a portion of the Sponsor Fee for
stated periods of time. For the fiscal year ended December 31, 2025, the Trust incurred a Sponsor Fee of $515,401 of which $485,363 had
been paid as of December 31, 2025. For the month of December 2025, the Trust incurred a Sponsor Fee of $30,038, which was unpaid as of
December 31, 2025, and is reported as a liability on the Statement of Assets and Liabilities.
**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS**
**Securities Authorized for Issuance under Equity Compensation Plans**
Not applicable.
**Security Ownership of Certain Beneficial Owners and Management**
The Trust has no officers or directors. There are no persons known
by the Trust to own directly or indirectly beneficially more than 5% of the outstanding Shares of the Trust.
| | 70 | | |
| | |
**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE**
**General**
Shareholders are dependent on the good faith of the respective parties
subject to such conflicts to resolve them equitably. Although the Sponsor attempts to monitor these conflicts, it is extremely difficult,
if not impossible, for the Sponsor to ensure that these conflicts do not, in fact, result in adverse consequences to the Trust.
The Sponsor asserts that Shareholders have, by subscribing for Shares,
consented to the conflicts of interest described below in the event of any proceeding alleging that such conflicts violated any duty owed
by the Sponsor to investors.
**The Sponsor**
The officers, directors and personnel providing services with respect
to the Sponsor do not devote their time exclusively to the Trust. These persons are directors, officers or employees of other entities,
including affiliates of the Sponsor, which may compete with the Trust for their services. They could have a conflict between their responsibilities
to the Trust and to those other entities.
The Sponsor has sole current authority to manage the investments and
operations of the Trust, and this may allow it to act in a way that furthers its own interests which may create a conflict with your best
interests. Shareholders have very limited voting rights, which limit their ability to influence matters such as amendment of the Trust
Agreement, change in the Trusts basic investment policy, dissolution of the Trust, or the sale or distribution of the Trusts
assets.
**The Seed Investor**
WisdomTree, Inc., the parent of the Sponsor, purchased: (i) $50,000
in Shares at a price per Share of $50 on December 22, 2023, and (ii) $2,450,000 in Shares at a price per Share of $50 on January 8, 2024,
for a total of $2,500,000, resulting in total ownership of 50,000 Shares. On December 16, 2024, 50,000 shares were sold for proceeds $5,637,003.
As of December 31, 2025, WisdomTree Inc. did not own any outstanding Shares of the Trust.
**Prime Execution Agent**
The Trust may engage in sales of bitcoin by placing orders with the
Prime Execution Agent. The Prime Execution Agent routes orders placed by the Sponsor through the prime execution agent execution platform
(the Trading Platform) to a Connected Trading Venue where the order is executed. Each order placed by the Sponsor is sent,
processed and settled at each Connected Trading Venue to which it is routed. The Prime Execution Agent Agreement provides that the Prime
Execution Agent is subject to certain conflicts of interest, including: (i) the Trusts orders may be routed to the Prime Execution
Agents own execution venue where the Trusts orders may be executed against other customers of the Prime Execution Agent
or with the Coinbase acting as principal, (ii) the beneficial identity of the counterparty purchaser or seller with respect to the Trusts
orders may be unknown and therefore may inadvertently be another client of the Prime Execution Agent, (iii) the Prime Execution Agent
does not engage in front-running, but is aware of the Trusts orders or imminent orders and may execute a trade for its own inventory
(or the account of an affiliate) while in possession of that knowledge and (iv) the Prime Execution Agent may act in a principal capacity
with respect to certain orders. As a result of these and other conflicts, when acting as principal, the Prime Execution Agent may have
an incentive to favor its own interests and the interests of its affiliates over the Trusts interests.
**Proprietary and Individual Trading/Other Clients**
The Sponsor and its respective directors, officers, employees and/or
affiliates (and the affiliates directors, officers and employees) may trade in the bitcoin, cryptocurrency, derivative or other
markets for their own accounts and for the accounts of their clients, and in doing so may take positions opposite to those held by the
Trust or may compete with the Trust for positions in the marketplace. Such trading may create conflicts of interest on behalf of one or
more such persons in respect of their obligations to the Trust. Further, such transactions may not serve to benefit the Shareholders of
the Trust and may have a positive or negative effect on the value of the bitcoin held by the Trust and, consequently, on the market value
of bitcoin. There can be no assurance that any of the foregoing will not have an adverse effect on the performance of the Trust or its
Shares. Records of proprietary trading and trading on behalf of other clients are not available for inspection by Shareholders. Internal
written trading policies are also not available for inspection by Shareholders.
Because the Sponsor and its respective directors, officers, employees
and/or affiliates (and the affiliates directors, officers and employees) may trade for their own accounts at the same time that
the Sponsor is managing the Trust, prospective investors should be aware that such persons may from time-to-time take positions in their
proprietary accounts which are opposite, or ahead of, the positions taken for the Trust and proprietary accounts may receive preferential
treatment as it relates to the pool.
| | 71 | | |
| | |
**Resolution of Conflicts Procedures**
The Trust Agreement provides that whenever a conflict of interest exists
between the Sponsor or any of its affiliates, on the one hand, and the Trust or any Shareholders or any other person, on the other hand,
the Sponsor will resolve such conflict of interest considering the relative interest of each party (including its own interest) and the
benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable accepted accounting
practices or principles.
**Director Independence**
As a statutory trust, the Trust does not have a board of directors.
**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
**Audit and Non-Audit Fees**
The table below summarizes the fees for services performed by Ernst
and Young LLP for the years ended December 31, 2025 and December 31, 2024.
|
| |
2025 | | |
2024 | | |
|
Audit fees | |
$ | 193,800 | | |
$ | 190,000 | | |
|
Audit-related fees | |
| | | |
| | | |
|
Tax fees | |
| | | |
| | | |
|
All other fees | |
| | | |
| | | |
|
Total | |
$ | 193,800 | | |
$ | 190,000 | | |
**Approval of Independent Registered Public Accounting Firm Services
and Fees**
The Sponsor approved the services provided by the Trusts independent
registered public accounting firm described above. Fees of such services are paid for by the Sponsor and the Sponsor pre-approves, including
for the year ended December 31, 2025, all audit and allowed non-audit services of the Trusts independent registered public accounting
firm, including all engagement fees and terms.
| | 72 | | |
| | |
**PART IV**
**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**
**1. Financial Statements**
See Index to Financial Statements on Page F-1 for a list of the financial
statements being filed herein.
**2. Financial Statement Schedules**
Schedules have been omitted since they are either not required, not
applicable, or the information has otherwise been included.
| | 73 | | |
| | |
**3. Exhibits**
|
|
|
|
|
Incorporated by Reference |
|
| |
|
Exhibit
No. |
|
Exhibit Description |
|
Form |
|
File No. |
|
Exhibit
No. |
|
Date |
|
Filed
Herewith | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
4.1 |
|
Second Amended and Restated Trust Agreement, dated as of January 6, 2024 |
|
S-1/A |
|
333-254134 |
|
3.1 |
|
1/8/2024 |
|
| |
|
4.2 |
|
Certificate of Trust |
|
S-1 |
|
333-254134 |
|
3.2 |
|
3/11/2021 |
|
| |
|
4.3 |
|
Amended Certificate of Trust |
|
S-1/A |
|
333-254134 |
|
3.3 |
|
12/18/2023 |
|
| |
|
4.6 |
|
Description of Registrants Securities |
|
10-K |
|
333-254134 |
|
4.5 |
|
3/27/2025 |
|
| |
|
10.1 |
|
Coinbase Prime Execution Agent Agreement (including Trade Financing Agreement) |
|
S-1/A |
|
333-254134 |
|
10.1 |
|
12/29/2023 |
|
| |
|
10.2 |
|
Coinbase Custodial Services Agreement (included in Exhibit 10.1) |
|
S-1/A |
|
333-254134 |
|
10.1 |
|
12/29/2023 |
|
| |
|
10.3 |
|
Marketing Agent Agreement, dated as of December 29, 2023 |
|
S-1/A |
|
333-254134 |
|
10.3 |
|
12/29/2023 |
|
| |
|
10.4 |
|
Custody Agreement (Cash and Cash Equivalents), dated as of November 15, 2024 |
|
|
|
|
|
|
|
|
|
X | |
|
10.5 |
|
Trust Administration Agreement (including Accounting), dated as of November 15, 2024 |
|
|
|
|
|
|
|
|
|
X | |
|
10.6 |
|
Transfer Agency Agreement, dated as of November 15, 2024 |
|
|
|
|
|
|
|
|
|
X | |
|
10.7 |
|
Form of Authorized Participant Agreement |
|
S-1/A |
|
333-254134 |
|
10.7 |
|
12/29/2023 |
|
| |
|
14.1 |
|
Code of Conduct |
|
10-K |
|
333-254134 |
|
14.1 |
|
3/27/2025 |
|
| |
|
19.1 |
|
Insider Trading Policies and Procedures |
|
10-K |
|
333-254134 |
|
19.1 |
|
3/27/2025 |
|
| |
|
23.1 |
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
|
|
|
|
|
|
X | |
|
31.1 |
|
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X | |
|
31.2 |
|
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X | |
|
32.1 |
|
Certification by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X | |
|
32.2 |
|
Certification by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
X | |
|
97.1 |
|
Compensation Clawback Policy |
|
10-K |
|
333-254134 |
|
97.1 |
|
3/29/2024 |
|
| |
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
|
|
X | |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
X | |
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
X | |
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
X | |
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
X | |
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
|
X | |
|
104 |
|
Cover Page Interactive Data File-The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
|
|
|
|
|
|
|
|
|
| |
| | 74 | | |
| | |
**ITEM 16. FORM 10-K SUMMARY**
None.
| | 75 | | |
| | |
**SIGNATURES**
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, in the capacities* indicated,
thereunto duly authorized.
|
Signature |
|
Title |
|
Date | |
|
|
|
|
|
| |
|
/s/ Jeremy Schwartz
Jeremy Schwartz |
|
Chief Executive Officer (Principal Executive Officer)* |
|
March 27, 2026 | |
|
|
|
|
|
| |
|
/s/ David Castano
David Castano |
|
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)* |
|
March 27, 2026 | |
* The registrant is a trust and the persons are signing in their capacities
as officers of WisdomTree Digital Commodity Services, LLC, the Sponsor of the registrant.
| | 76 | | |
| | |
**WISDOMTREE BITCOIN FUND**
**INDEX TO FINANCIAL STATEMENTS**
****
|
Financial Statements |
|
| |
|
Report of Independent Registered Public Accounting Firm (PCAOB 42) |
|
F-2 | |
|
Statements of Assets and Liabilities for December 31, 2025 and December 31, 2024 |
|
F-3 | |
|
Schedules of Investment as of December 31, 2025 and December 31, 2024 |
|
F-4 | |
|
Statements of Operations for the Years Ended December 31, 2025 and December 31, 2024 |
|
F-6 | |
|
Statements of Changes in Net Assets for the Years Ended December 31, 2025 and December 31, 2024 |
|
F-7 | |
|
Statements of Cash Flows for the Years Ended December 31, 2025 and December 31, 2024 |
|
F-8 | |
|
Notes to Financial Statements |
|
F-9 | |
| | F-1 | | |
| | |
**Report of Independent Registered Public Accounting Firm**
To the Shareholders and the Trustee of WisdomTree Bitcoin Fund
**Opinion on the Financial Statement**
We have audited the accompanying statement of
assets and liabilities of WisdomTree Bitcoin Fund (the Trust) as of December 31, 2025 and 2024, and the schedules of investment
as of December 31, 2025 and 2024, the related statement of operations, changes in net assets, and cash flows for each of the two years
in the period ended December 31, 2025, and the related notes (collectively referred to as the financial statements). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of December 31,
2025 and 2024, the results of its operations, and the changes in its net assets and its cash flows for each of the two years in the period
ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
**Basis for Opinion**
These financial statements are the responsibility
of the Trust's management. Our responsibility is to express an opinion on the Trusts financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to
perform, an audit of the Trusts internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Trusts internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Ernst & Young LLP
We have served as the auditor
of one or more WisdomTree investment companies since 2006.
NewYork, NewYork
March 27, 2026
| | F-2 | | |
| | |
**WisdomTree Bitcoin Fund**
**Statements of Assets and Liabilities**
**December 31, 2025 and December 31, 2024**
****
|
| |
| | | |
| | | |
|
| |
December 31, 2025 | | |
December 31, 2024 | | |
|
| |
| | |
| | |
|
ASSETS: | |
| | | |
| | | |
|
Investment in bitcoin, at cost | |
$ | 106,564,016 | | |
$ | 233,035,069 | | |
|
Investment in bitcoin, at fair value (Note 2) | |
| 139,717,030 | | |
| 360,596,442 | | |
|
Total Assets | |
| 139,717,030 | | |
| 360,596,442 | | |
|
LIABILITIES: | |
| | | |
| | | |
|
Sponsor Fee payable (Note 3) | |
| 30,038 | | |
| 79,210 | | |
|
Total Liabilities | |
| 30,038 | | |
| 79,210 | | |
|
COMMITMENTS AND CONTINGENCIES (Note 4) | |
| | | |
| | | |
|
NET ASSETS | |
$ | 139,686,992 | | |
$ | 360,517,232 | | |
|
| |
| | | |
| | | |
|
Net Assets consist of: | |
| | | |
| | | |
|
Capital Stock | |
$ | 47,880,456 | | |
$ | 232,041,248 | | |
|
Total earnings (loss) | |
| 91,806,536 | | |
| 128,475,984 | | |
|
NET ASSETS | |
$ | 139,686,992 | | |
$ | 360,517,232 | | |
|
Outstanding beneficial interest shares of $0.0001 par value (unlimited number of shares authorized) | |
| 1,510,000 | | |
| 3,640,000 | | |
|
Net Asset Value Per Share | |
$ | 92.51 | | |
$ | 99.04 | | |
*See accompanying Notes to Financial Statements
which are an integral part of the financial statements.*
| | F-3 | | |
| | |
****
**WisdomTree Bitcoin Fund**
**Schedules of Investment**
**December 31, 2025**
|
| |
| | | |
| | | |
|
Investment | |
Quantity | | |
Value | | |
|
DIGITAL ASSETS 100.0% | |
| | | |
| | | |
|
Bitcoin(a) | |
| 1,598 | | |
$ | 139,717,030 | | |
|
TOTAL INVESTMENT IN BITCOIN | |
| | | |
| | | |
|
(Cost: $106,564,016) | |
| | | |
| 139,717,030 | | |
|
Liabilities in excess of Other Assets (0.0)% | |
| | | |
| (30,038 | ) | |
|
NET ASSETS 100.0% | |
| | | |
$ | 139,686,992 | | |
|
(a) | Non-income producing. | |
**FAIR VALUATION SUMMARY**
The following is a summary of the fair valuations according to the
inputs used in valuing the Trusts investments (See Note 2 Investment Valuation):
|
| |
| | | |
| | | |
| | | |
| | | |
|
| |
Quoted Prices in Active Markets | | |
Other Significant Observable Inputs | | |
Significant Unobservable Inputs | | |
| | |
|
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | | |
|
Assets: | |
| | | |
| | | |
| | | |
| | | |
|
Investment in bitcoin | |
| | | |
| | | |
| | | |
| | | |
|
Digital Assets | |
$ | 139,717,030 | | |
$ | | | |
$ | | | |
$ | 139,717,030 | | |
|
Total Investment in bitcoin | |
$ | 139,717,030 | | |
$ | | | |
$ | | | |
$ | 139,717,030 | | |
**
*See accompanying Notes to Financial Statements which are an integral
part of the financial statements.*
**
| | F-4 | | |
| | |
**WisdomTree Bitcoin Fund**
**Schedules of Investment**
**December 31, 2024**
|
Investment | |
Quantity | | |
Value | | |
|
DIGITAL ASSETS 100.0% | |
| | | |
| | | |
|
Bitcoin(a) | |
| 3,862 | | |
$ | 360,596,442 | | |
|
TOTAL INVESTMENT IN BITCOIN | |
| | | |
| | | |
|
(Cost: $233,035,069) | |
| | | |
| 360,596,442 | | |
|
Liabilities in excess of Other Assets (0.0)% | |
| | | |
| (79,210 | ) | |
|
NET ASSETS 100.0% | |
| | | |
$ | 360,517,232 | | |
|
(a) | Non-income producing. | |
**FAIR VALUATION SUMMARY**
The following is a summary of the fair valuations according to the
inputs used in valuing the Trusts investments (See Note 2 Investment Valuation):
|
| |
| | | |
| | | |
| | | |
| | | |
|
| |
Quoted Prices in Active Markets | | |
Other Significant Observable Inputs | | |
Significant Unobservable Inputs | | |
| | |
|
| |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | | |
|
Assets: | |
| | | |
| | | |
| | | |
| | | |
|
Investment in bitcoin | |
| | | |
| | | |
| | | |
| | | |
|
Digital Assets | |
$ | 360,596,442 | | |
$ | | | |
$ | | | |
$ | 360,596,442 | | |
|
Total Investment in bitcoin | |
$ | 360,596,442 | | |
$ | | | |
$ | | | |
$ | 360,596,442 | | |
*See accompanying Notes to Financial Statements which are an integral
part of the financial statements.*
| | F-5 | | |
| | |
****
**WisdomTree Bitcoin Fund**
**Statements of Operations**
****
****
|
| |
| | |
| | |
|
| |
For the year ended December 31, 2025 | | |
For the year ended December
31, 2024* | | |
|
INVESTMENT INCOME: | |
| | |
| | |
|
Total investment income | |
$ |
| | |
$ |
| | |
|
| |
| | |
| | |
|
EXPENSES: | |
| | | |
| | | |
|
Sponsor Fee (Note 3) | |
| 515,401 | | |
| 366,373 | | |
|
Total expenses | |
| 515,401 | | |
| 366,373 | | |
|
Expense waiver (Note 3) | |
| | | |
| (75,748 | ) | |
|
Net expenses | |
| 515,401 | | |
| 290,625 | | |
|
Net investment loss | |
| (515,401 | ) | |
| (290,625 | ) | |
|
| |
| | | |
| | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT: | |
| | | |
| | | |
|
Net realized gain from investment in bitcoin sold to pay Sponsor Fee | |
| 203,713 | | |
| 34,970 | | |
|
Net realized gain from investment in bitcoin sold for redemption of Shares | |
| 58,050,599 | | |
| 1,170,266 | | |
|
Net increase (decrease) in unrealized appreciation (depreciation) on investment in bitcoin | |
| (94,408,359 | ) | |
| 127,561,373 | | |
|
Net realized and unrealized gain (loss) on investment in bitcoin | |
| (36,154,047 | ) | |
| 128,766,609 | | |
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
$ | (36,669,448 | ) | |
$ | 128,475,984 | | |
|
* | Commencement of operations date January 11, 2024. The commencement of operations date is considered to be the date WisdomTree Bitcoin
Fund began trading in the secondary market. | |
**
*See accompanying Notes to Financial Statements
which are an integral part of the financial statements.*
****
****
| | F-6 | | |
| | |
****
**WisdomTree Bitcoin Fund**
**Statements of Changes in Net Assets**
|
| |
| | | |
| | | |
|
| |
For the year ended December 31, 2025 | | |
For the year ended December
31, 2024* | | |
|
| |
| | |
| | |
|
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: | |
| | | |
| | | |
|
Net investment loss | |
$ | (515,401 | ) | |
$ | (290,625 | ) | |
|
Net realized gain from investment in bitcoin sold to pay Sponsor Fee | |
| 203,713 | | |
| 34,970 | | |
|
Net realized gain from investment in bitcoin sold for redemption of Shares | |
| 58,050,599 | | |
| 1,170,266 | | |
|
Net increase (decrease) in unrealized appreciation on investment in bitcoin | |
| (94,408,359 | ) | |
| 127,561,373 | | |
|
Total increase (decrease) in net assets resulting from operations | |
| (36,669,448 | ) | |
| 128,475,984 | | |
|
| |
| | | |
| | | |
|
CAPITAL SHARE TRANSACTIONS: | |
| | | |
| | | |
|
Net proceeds from sale of Shares | |
| 42,253,079 | | |
| 245,565,074 | | |
|
Cost of Shares redeemed | |
| (226,413,871 | ) | |
| (13,573,826 | ) | |
|
Net increase (decrease) in net assets resulting from capital share transactions | |
| (184,160,792 | ) | |
| 231,991,248 | | |
|
Net Increase (Decrease) in Net Assets | |
| (220,830,240 | ) | |
| 360,467,232 | | |
|
| |
| | | |
| | | |
|
NET ASSETS: | |
| | | |
| | | |
|
Beginning of period | |
$ | 360,517,232 | | |
$ | 50,000 | | |
|
End of period | |
$ | 139,686,992 | | |
$ | 360,517,232 | | |
|
| |
| | | |
| | | |
|
SHARES CREATED AND REDEEMED | |
| | | |
| | | |
|
Shares outstanding, beginning of period | |
| 3,640,000 | | |
| 1,000 | | |
|
Shares created | |
| 385,000 | | |
| 3,849,000 | | |
|
Shares redeemed | |
| (2,515,000 | ) | |
| (210,000 | ) | |
|
Shares outstanding, end of period | |
| 1,510,000 | | |
| 3,640,000 | | |
|
* | Commencement of operations date January 11, 2024. The commencement of operations date is considered to be the date WisdomTree Bitcoin
Fund began trading in the secondary market. | |
*See accompanying Notes to Financial Statements
which are an integral part of the financial statements.*
****
****
| | F-7 | | |
| | |
****
**WisdomTree Bitcoin Fund**
**Statements of Cash Flows**
|
| |
| | | |
| | | |
|
| |
For the year ended December 31, 2025 | | |
For the year ended
December 31, 2024* | | |
|
| |
| | |
| | |
|
Cash Flows from Operating Activities: | |
| | | |
| | | |
|
Net increase (decrease) in net assets resulting from operations | |
$ | (36,669,448 | ) | |
$ | 128,475,984 | | |
|
ADJUSTMENTS TO RECONCILE NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: | |
| | | |
| | | |
|
Purchases of bitcoin | |
| (42,253,604 | ) | |
| (241,768,512 | ) | |
|
Proceeds from sales of bitcoin sold for net redemption of Shares | |
| 226,414,396 | | |
| 9,727,264 | | |
|
Proceeds from sales of bitcoin sold to pay Sponsor Fee | |
| 564,573 | | |
| 211,415 | | |
|
Net realized gain on investment in bitcoin | |
| (58,254,312 | ) | |
| (1,205,236 | ) | |
|
Net change in unrealized appreciation from investment in bitcoin | |
| 94,408,359 | | |
| (127,561,373 | ) | |
|
Changes in assets and liabilities: | |
| | | |
| | | |
|
Increase (decrease) in Sponsor Fee payable, net | |
| (49,172 | ) | |
| 79,210 | | |
|
Net cash provided by (used for) operating activities | |
| 184,160,792 | | |
| (232,041,248 | ) | |
|
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | | |
|
Net proceeds from the sale of Shares | |
| 42,253,079 | | |
| 245,565,074 | | |
|
Cost of Shares redeemed | |
| (226,413,871 | ) | |
| (13,573,826 | ) | |
|
Net cash provided by (used for) financing activities | |
| (184,160,792 | ) | |
| 231,991,248 | | |
|
Net increase (decrease) in cash | |
| | | |
| (50,000 | ) | |
|
Cash at beginning of period | |
| | | |
| 50,000 | | |
|
Cash at end of period | |
$ | | | |
$ | | | |
**
|
* | Commencement of operations date January 11, 2024. The commencement of operations date is considered to be the date WisdomTree Bitcoin
Fund began trading in the secondary market. | |
*See accompanying Notes to Financial Statements
which are an integral part of the financial statements.*
****
| | F-8 | | |
| | |
****
**WisdomTree Bitcoin Fund**
**Notes to Financial Statements**
**December 31, 2025**
|
1. | ORGANIZATION | |
WisdomTree Bitcoin Fund (the Trust)
is a Delaware statutory trust organized on March 8, 2021 under Delaware law pursuant to the Delaware Statutory Trust Act (the DTSA)
and the Second Amended and Restated Trust Agreement (the Trust Agreement). The Trusts investment objective is to
gain exposure to the price of bitcoin, less expenses and liabilities of the Trusts operations. The Trust is an exchange-traded
fund that issues common shares of beneficial interest (the Shares) that are listed on the Cboe BZX Exchange, Inc. (the Exchange)
and trade under the ticker symbol BTCW.
WisdomTree Digital Commodity Services, LLC (the
Sponsor) serves as sponsor of the Trust. The Sponsor arranged for the creation of the Trust and is responsible for the ongoing
registration of the Shares for public offering in the United States and the listing of Shares on the Exchange. The Sponsor will develop
and administer a marketing plan for the Trust and prepare marketing materials regarding the Shares, in each case in conjunction with Foreside
Fund Services, LLC (the Marketing Agent). The Sponsor selects the service providers, negotiates the applicable agreements
and fees and monitors the performance of the Trust.
Delaware Trust Company (the Trustee)
acts as the trustee of the Trust for the purpose of creating a Delaware statutory trust in accordance with the DSTA. The Trustee is appointed
to serve as the trustee of the Trust in the State of Delaware for the sole purpose of satisfying the requirement of Section 3807(a) of
the DSTA that the Trust have at least one Trustee with a principal place of business in the State of Delaware.
Prior to December 31, 2023, the Trust had no operations
other than matters relating to its organization and registration under Securities Act of 1933, as amended (the 1933 Act).
WisdomTree, Inc., the parent of the Sponsor, purchased (i) $50,000 in Shares at a price per Share of $50 on December 22, 2023, and (ii)
$2,450,000 in Shares at a price per Share of $50 on January 8, 2024, for a total of $2,500,000. On December 16, 2024, WisdomTree, Inc.
sold 50,000 shares of the Trust for proceeds $5,637,003 and did not own any shares of the Trust as of that date. On January 10, 2024,
the Trusts registration statement relating to the continuous public offering of its Shares was declared effective by the U.S. Securities
and Exchange Commission (the SEC) and the Trust commenced trading on the Exchange on January 11, 2024.
Coinbase Custody Trust Company LLC (the Bitcoin
Custodian) is the custodian of the Trust with respect to the Trusts bitcoin holdings, and The Bank of New York Mellon ("BNY")
serves as cash custodian, administrator, fund accountant, and transfer agent for the Trust (the "Trust Administrator" or the
"Cash Custodian").
In the ordinary course of operation, the Trust
will sell or redeem its Shares, in blocks of 5,000 Shares (a Basket) based on the quantity of bitcoin attributable to each
Share of the Trust (net of accrued but unpaid expenses and liabilities). For a subscription of Shares, the subscription shall be in the
amount of cash needed to purchase the amount of bitcoin represented by the Basket being created, in each case as calculated by the Trust
Administrator. For a redemption of Shares, the Sponsor shall arrange for the bitcoin represented by the Basket to be sold and the cash
proceeds distributed. Financial firms that are authorized to purchase or redeem Shares with the Trust (known as Authorized Participants)
will deliver cash to the Trusts account with the Cash Custodian in exchange for Shares when they purchase Shares and will receive
cash (from the Cash Custodian), when they redeem Shares with the Trust. Shares initially comprising the same Basket but sold by the Authorized
Participants to the public at different times may have different offering prices, which depend on various factors, including the supply
and demand for Shares, the value of the Trusts assets, and market conditions at the time of a transaction.
|
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
The following is a summary of significant accounting
policies consistently followed by the Trust in the preparation of its financial statements. The financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America (GAAP) and in the opinion of
management reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial
statements. The Trust is an investment company for GAAP purposes and follows the specialized accounting and reporting guidance in the
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC or Codification)
Topic 946, *Financial Services-Investment Companies*. Rules and interpretive releases of the SEC under authority of federal laws
are also sources of authoritative GAAP for SEC registrants.
**Cash & Cash Equivalents**
Cash, if any, includes non-interest bearing, non-restricted cash maintained with the Cash Custodian.
| | F-9 | | |
| | |
**Investment Transactions and Revenue Recognition**
The Trust records its investment transactions in bitcoin on a trade date basis and changes in fair value are reflected as net change in
unrealized appreciation or depreciation on investment in bitcoin. Realized gains and losses on the Trusts investment transactions
in bitcoin are calculated using the average cost method.
**Use of Estimates** The preparation
of financial statements in conformity with GAAP, requires management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of increases and decreases in the net assets from operations during the reporting period. Actual results could differ
from those estimates.
**Investment Valuation** The Trusts
investment in bitcoin is recorded on the financial statements at fair value in accordance with FASB ASC Topic 820, *Fair Value Measurements
and Disclosures* (ASC 820). Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction
to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of
a principal market, in the most advantageous market for the asset or liability. ASC 820 defines principal market as the
market with the greatest volume and level of activity for the asset or liability. The determination of the principal market (and, as a
result, the market participants in the principal market) is made from the perspective of the reporting entity and the reporting entity
must have access to the principal (or most advantageous) market at the measurement date. ASC 820 defines most advantageous market
as the market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer
the liability, after taking into account transaction costs and transportation costs. Based on the foregoing, the Trust has determined
its principal market for GAAP reporting for its bitcoin investment to be the bitcoin platform operated by Coinbase, Inc. and utilizes
an exchange-traded price from that principal market as of 11:59 p.m. Eastern Standard Time on the financial statement measurement date.
ASC 820 has established a three-tier hierarchy
of inputs to be used when determining fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market
participants would use in pricing the asset or liability, including assumptions about risk for example, the risk inherent in a
particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation
technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing
the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable
inputs reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or
liability. Unobservable inputs are based on the best information available in the circumstances. The three-tier hierarchy of inputs is
summarized in the three broad levels listed below:
Level 1
quoted prices in active markets for identical assets or liabilities
Level 2
other significant observable inputs (inputs other than quoted prices included within Level 1 that are observable for the asset
or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are
observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation
or other means)
Level 3
significant unobservable inputs (including the Trusts assumptions in determining the fair value of investments)
The inputs or methodology used for valuation are
not necessarily an indication of the risk associated with investing in those investments.
The summary of fair valuations according to the
inputs used in valuing the Trusts assets as of the measurement date is included in a Fair Valuation Summary supplementary
table in the Schedules of Investment.
For the years ended December 31, 2025 and 2024,
there were no transfers into or out of Level 3 of the fair value hierarchy.
**Income Taxes** The Trust is
classified as a grantor trust for United States federal income tax purposes. As a result, the Trust itself will not be subject
to United States federal income tax. Instead, the Trusts income and expenses will flow through to the shareholders.
Consequently, each sale of bitcoin by the Trust would constitute a taxable event to shareholders. The Sponsor evaluates tax positions
taken or expected to be taken in the course of its tax treatment, and its tax reporting to its shareholders, of these positions to determine
whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions not deemed
to meet that threshold would be recorded as an expense in the current year. The Trust is required to analyze all open tax years. The Sponsor
has analyzed applicable tax laws and regulations and their application to the Trust as of December 31, 2025 and does not believe that
there are any uncertain tax positions that require recognition of a tax liability. Open tax years are those years that are open for examination
by the relevant income taxing authority. All tax years since inception remain open for examination. There were no examinations in progress
at period end.
| | F-10 | | |
| | |
|
3. | EXPENSES, ORGANIZATION AND OFFERING COSTS | |
The Trust pays the Sponsor a fee (the Sponsor
Fee) in accordance with the Trust agreement and as set forth in the Prospectus. The Sponsor Fee is0.25%per annum of
the Trusts average daily net asset value. The Sponsor Fee will accrue daily and be payable monthly in U.S. dollars. The Trusts
only ordinary recurring expense is expected to be the Sponsor Fee. In exchange for the Sponsors Fee, the Sponsor has agreed to
assume the marketing and the following administrative expenses of the Trust: the fees of the Trustee, the Trust Administrator, Fund Accountant,
Transfer Agent, the Marketing Agent, Coinbase Custody Trust Company LLC (the Bitcoin Custodian), the Cash Custodians
Fee, Exchange listing fees, SEC registration fees, printing and mailing costs, tax reporting fees, audit fees, license fees and ordinary
legal fees and expenses. The Sponsor paid the costs of the Trusts organization and the initial sale of the Shares. There is no
cap on the amount of these Sponsor paid expenses. For the year ended December 31, 2025 and the period from January 11, 2024 (commencement
of operations) through December 31, 2024, the Trust accrued a Sponsor Fee of $515,401 and $366,373, respectively.
For the period that commenced on January 11, 2024
through July 11, 2024, the Sponsor waived the Sponsor Fee for the first $1.0 billion of the Trusts assets. After the close of business
on July 11, 2024, the waiver expired and was not renewed. For the year ended December 31, 2024, the Sponsor Fee amount waived totaled
$75,748.
The Trust may incur certain non-recurring expenses
that are not assumed by the Sponsor, including but not limited to, taxes and governmental charges, any applicable brokerage commissions,
financing charges or fees, bitcoin network fees and similar transaction fees, expenses and costs of any extraordinary services performed
by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders (including,
for example, in connection with any fork of the Bitcoin blockchain), any indemnification of the Cash Custodian, Bitcoin Custodian, Trust
Administrator or other agents, service providers or counterparties of the Trust and extraordinary legal fees and expenses, including any
legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters.
The Trust does not have any income and will need
to sell bitcoin at the price available through Coinbase Inc. (the Prime Execution Agent) to cover the Sponsors Fee
and expenses not assumed by the Sponsor, if any. The Trust is responsible for paying any costs associated with the transfer of bitcoin
to the Sponsor or the sale of bitcoin. Under the terms of each Authorized Participant Agreement, the Authorized Participants will be responsible
for any brokerage or transaction costs associated with the sale or transfer of bitcoin incurred in connection with the fulfillment of
a creation and redemption order. Brokerage or transaction costs associated with the sale or transfer of bitcoin are recorded by the Trust
as a reduction of realized gain or an increase in realized loss from investment in bitcoin on the Statement of Operations. Reimbursements
of brokerage or transaction costs by an Authorized Participant are included in the capital share transactions activity shown on the Statements
of Changes in Net Assets as an increase to*Net proceeds from sale of shares*or a decrease to*Cost
of shares redeemed*. The Trust may also be subject to other liabilities (for example, as a result of litigation) that have also
not been assumed by the Sponsor.
To cover the Sponsors Fee and expenses
not assumed by the Sponsor, the Sponsor or its delegate will cause the Trust (or its delegate) to convert bitcoin into U.S. dollars at
the price available through the Prime Execution Agent. The number of bitcoins represented by a Share will decline each time the Trust
pays the Sponsor Fee or any Trust expenses not assumed by the Sponsor by transferring or selling bitcoins.
|
4. | COMMITMENTS AND CONTINGENCIES | |
In the normal course of business, the Trust may
enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Trusts
maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have
not yet occurred. However, the Trust has not had prior claims or losses pursuant to these contracts and believes such exposure to be remote.
|
5. | INDEMNIFICATION | |
The Trust Agreement provides that the Sponsor
and its shareholders, members, directors, officers, employees, affiliates and subsidiaries (each a Sponsor Indemnified Party)
will be indemnified by the Trust and held harmless against any loss, liability or expense incurred under the Trust Agreement without fraud,
bad faith or willful misconduct on the part of such Sponsor Indemnified Party arising out of or in connection with the performance of
its obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust Agreement. The Trusts
maximum exposure under these arrangements is unknown; however, the Trust expects any risk of loss to be remote.
|
6. | CONCENTRATION RISK | |
Unlike other funds that may invest in diversified
assets, the Trusts investment strategy is concentrated in a single asset class: bitcoin. This concentration maximizes the degree
of the Trusts exposure to a variety of market risks associated with bitcoin. By concentrating its investment strategy solely in
bitcoin, any losses suffered as a result of a decrease in the value of bitcoin can be expected to reduce the value of an interest in the
Trust and will not be offset by other gains if the Trust were to invest in underlying assets that were diversified.
| | F-11 | | |
| | |
|
7. | DIGITAL ASSET RISK | |
The Trust invests substantially all of its assets
in bitcoin. Bitcoin is a digital asset (*i.e.,*a cryptocurrency) whose ownership and behavior are determined by participants
in an online, peer-to-peer network that connects computers that run publicly accessible, or open source, software that follows
the rules and procedures governing the bitcoin network. Bitcoin is a relatively new asset class and is subject to unique and substantial
risks, and historically, has been subject to significant price volatility. The price of bitcoin could drop precipitously (including to
zero). These factors and events could have a significant negative impact on the Trust.
|
8. | CREATIONS AND REDEMPTION OF SHARES | |
The Sponsor has the power and authority, without
action or approval by the shareholders, to cause the Trust to issue Shares from time to time as it deems necessary and desirable, but
only in one or more baskets (Baskets) of 5,000 shares based on the quantity of bitcoin attributable to each Share of the
Trust (net of accrued but unpaid expenses and liabilities). The number of Shares authorized is unlimited. From time to time, the Sponsor
may cause the Trust to divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust, or in any way affecting the rights, of the shareholders, without action or approval by the shareholders. The ownership
of Shares are recorded on the books of the Trust and/or a transfer agent (or similar agent) for the Trust. No certificates certifying
the ownership of Shares are issued except as the Sponsor may otherwise determine from time to time. The Sponsor may make such rules as
it considers appropriate for the issuance of share certificates, transfer of Shares and similar matters. The record books of the Trust
as kept by the Trust, or by a transfer agent (or similar agent), as the case may be, are conclusive as to the identity of the shareholders
and as to the number of Shares held time to time by each.
Authorized Participants are the
only persons that may place orders to create or redeem Baskets. Each Authorized Participant must (i) be a registered broker-dealer or
other securities market participant, such as a bank or other financial institution that is not required to register as a broker-dealer
to engage in securities transactions, (ii) be a participant in The Depository Trust Company, and (iii) have entered into an Authorized
Participant Agreement with the Trust.
The total deposit of cash required to create each
Basket includes the cash equivalent of an amount of bitcoin that is in the same proportion to the total net assets of the Trust. In order
to calculate the amount of cash necessary for a creation Basket, the Trust administrator multiplies the NAV per share by the number of
Shares in a creation Basket (5,000). Each night, the Sponsor or Trust administrator publish the amount of cash that will be required in
exchange for each creation Basket the next business day. To the extent there is a difference between the price actually paid by the Trust
to acquire a Creation Basket worth of bitcoin in the creation process compared to the cash value of the Creation Basket (*i.e*.,
if there is a difference between the amount paid by the Execution Agent on behalf of the Trust to purchase the requisite amount of bitcoin
and the valuation of bitcoin as part of the Trusts NAV calculation), that difference will also be charged to the creating Authorized
Participant in the form of a variable fee.
For a redemption of Baskets, the Authorized Participant
will be required to submit a redemption order by an early order cutoff time (the "Redemption Early Order Cutoff Time"). The
Redemption Early Order Cutoff Time is 6:00 p.m. ET on the Business Day prior to the trade date. On the date of the Redemption Early Order
Cutoff Time, the Trust may choose, in its sole discretion, to enter into a transaction with a bitcoin trading counterparty or the Prime
Execution Agent, to sell bitcoin in exchange for cash. Also, on the date of the Redemption Order Early Cutoff, the Trust instructs the
Bitcoin Custodian to prepare to move the associated bitcoin from the Trust's Vault Balance with the Bitcoin Custodian to the Trust's Trading
Balance with the Prime Execution Agent. For settlement of a redemption, the Authorized Participant delivers the necessary Shares to the
Trust, a bitcoin trading counterparty or the Prime Execution Agent, as applicable, delivers the cash to the Trust associated with the
Trust's sale of bitcoin, the Bitcoin Custodian delivers bitcoin to the bitcoin trading counterparty's account at the Prime Execution Agent
or directly to the Prime Execution Agent, as applicable, and the Trust delivers cash to the Authorized Participant. In the event the Trust
has not been able to successfully execute and complete settlement of a bitcoin transaction by the settlement date, the Authorized Participant
will be given the option to (1) cancel the redemption order, or (2) accept that the Trust will continue to attempt to complete the execution,
which will delay the settlement date. With respect to a redemption order, between the Trust and the Authorized Participant, the Authorized
Participant will be responsible for the dollar cost of the difference between the bitcoin price utilized in calculating the NAV on the
trade date and the price realized in selling the bitcoin to raise the cash needed for the cash redemption order to the extent the price
realized in selling the bitcoin is lower than the bitcoin price utilized in the NAV. To the extent the price realized is selling the bitcoin
is higher than the price utilized in the NAV, the Authorized Participant shall get to keep the dollar impact of any such difference.
NAV per Share for purposes of facilitating creations
and redemptions of the Trust is computed each business day using the CME CF Bitcoin Reference Rate New York Variant (the Reference
Rate) as of 4:00 p.m. Eastern Time to value the Trusts investment in bitcoin. The methodology of the Reference Rate used
to value bitcoin for purposes of calculating NAV per Share may not be deemed consistent with GAAP and may be different from the value
of bitcoin used in the Trusts GAAP financial statements.
Creation and redemption transactions of Shares
of the Trust are shown in the Statements of Changes in Net Assets.
| | F-12 | | |
| | |
|
9. | SEGMENT REPORTING | |
The Trust adopted FASB Accounting Standards Update
(ASU) 2023-07, *Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures* ("ASU 2023-07").
The Trust operates in one segment. The segment derives its revenues from Trust investments made in accordance with the defined investment
strategy of the Trust, as prescribed in the Trust's prospectus. The accounting policies are the same as those described in Note 2 -summary
of significant accounting policies. The Chief Operating Decision Maker ("CODM") is the Chief Executive Officer of the Sponsor.
The CODM monitors the operating results of the Trust. The financial information the CODM leverages to assess the segment's performance
and to make decisions for the Trust's single segment, is consistent with that presented within the Trust's financial statements.
|
10. | RECENT ACCOUNTING PRONOUNCEMENTS | |
In December 2023, the FASB issued ASU 2023-08,
*Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets* (ASU 2023-08).
ASU 2023-08 requires entities to subsequently measure certain crypto assets at fair value, and changes in fair value must be recorded
in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain
crypto assets. ASU 2023-08 is effective for annual and interim reporting periods beginning after December 15, 2024. Early adoption is
permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. Entities following
ASC Topic 946, Financial Services-Investment Companies should continue to present amounts related to crypto assets in their financial
statements in accordance with that industry-specific guidance. Management has evaluated ASU 2023-08 and determined that it does not have
an impact on the Trusts financial statements and related disclosures as the Trust presents its bitcoin investment in its financial
statements in accordance with ASC Topic 946.
In December 2023, the FASB issued ASU 2023-09,*Income
Taxes (Topic 740):Improvements to Income TaxDisclosures*(ASU 2023-09) which enhance income tax disclosures,
including amendments that require greater disaggregation of disclosures related to income taxes paid by jurisdiction. ASU 2023-09 is effective
for annual periods beginning after December 15, 2024, with early adoption permitted. Management has evaluated ASU 2023-09 and determined
that it does not have an impact on the Trusts financial Statements and related disclosures as the Trust is classified as a grantor
trust for federal income tax purposes and, therefore, no provision for federal income taxes is required.
|
11. | FINANCIAL HIGHLIGHTS | |
The Trust is presenting the following NAV and financial highlights
related to investment performance for a Share outstanding for the years ended December 31, 2025 and 2024. An individual investors
return and ratios may vary based on the timing of capital transactions.
*Selected data for a share of beneficial interest
outstanding throughout each period is presented below:*
**
|
Schedule of financial highlight | |
| | | |
| | | |
|
| |
For the Year Ended December 31, 2025 | | |
For the Year Ended December 31, 2024 | | |
|
Net asset value, beginning of period | |
$ | 99.04 | | |
$ | 50.00 | | |
|
Investment operations: | |
| | | |
| | | |
|
Net investment loss | |
| (0.27 | ) | |
| (0.15 | ) | |
|
Net realized and unrealized gain (loss) | |
| (6.26 | ) | |
| 49.19 | | |
|
Total from investment operations | |
| (6.53 | ) | |
| 49.04 | | |
|
Net asset value, end of period | |
$ | 92.51 | | |
$ | 99.04 | | |
|
TOTAL RETURN1 | |
| (6.59 | )% | |
| 98.08 | % | |
|
RATIOS/SUPPLEMENTAL DATA: | |
| | | |
| | | |
|
Net assets, end of period (000s omitted) | |
$ | 139,687 | | |
$ | 360,517 | | |
|
Ratios to average net assets of: | |
| | | |
| | | |
|
Expenses, net of expense waivers | |
| 0.25 | % | |
| 0.20 | %2 | |
|
Expenses, prior to expense waivers | |
| 0.25 | % | |
| 0.25 | %2 | |
|
Net investment loss | |
| (0.25 | )% | |
| (0.20 | )%2 | |
|
1 | Total return calculated for a period of less than one year is not annualized. For the period in which the Sponsor waived its fee,
the total return would have been lower if such fee had not been waived (Note 3). | |
|
2 | Annualized. | |
| | F-13 | | |
| | |
|
12. | QUARTERLY STATEMENT OF OPERATIONS | |
|
Schedule of quarterly statement of operations | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| |
Three months ended (unaudited) | | |
For the
Year Ended | | |
|
| |
March 31, 2025 | | |
June 30, 2025 | | |
September 30, 2025 | | |
December 31, 2025 | | |
December 31, 2025 | | |
|
INVESTMENT INCOME: | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Total investment income | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
EXPENSES: | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Sponsor Fee | |
$ | 204,357 | | |
$ | 95,918 | | |
$ | 113,409 | | |
$ | 101,717 | | |
$ | 515,401 | | |
|
Total expenses | |
| 204,357 | | |
| 95,918 | | |
| 113,409 | | |
| 101,717 | | |
| 515,401 | | |
|
Net investment loss | |
| (204,357 | ) | |
| (95,918 | ) | |
| (113,409 | ) | |
| (101,717 | ) | |
| (515,401 | ) | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
|
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT: | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
Net realized gain from investment in bitcoin sold to pay Sponsor Fee | |
| 82,185 | | |
| 35,251 | | |
| 46,950 | | |
| 39,327 | | |
| 203,713 | | |
|
Net realized gain from investment in bitcoin sold for net redemption of Shares | |
| 50,761,410 | | |
| 5,477,209 | | |
| - | | |
| 1,811,980 | | |
| 58,050,599 | | |
|
Net increase (decrease) in unrealized appreciation on investment in bitcoin | |
| (90,966,656 | ) | |
| 31,742,090 | | |
| 10,775,996 | | |
| (45,959,789 | ) | |
| (94,408,359 | ) | |
|
Net realized and unrealized gain (loss) on investment in bitcoin | |
| (40,123,061 | ) | |
| 37,254,550 | | |
| 10,822,946 | | |
| (44,108,482 | ) | |
| (36,154,047 | ) | |
|
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | |
$ | (40,327,418 | ) | |
$ | 37,158,632 | | |
$ | 10,709,537 | | |
$ | (44,210,199 | ) | |
$ | (36,669,448 | ) | |
|
13. | SUBSEQUENT EVENTS | |
The Sponsor has evaluated all subsequent transactions
and events through the date on which these financial statements were issued and has determined that no additional items require disclosure
in these financial statements.
F-14