5. Income Taxes
The Trust is classified as a partnership for U.S. federal income tax purposes. The Trust does not record a provision for U.S. federal, U.S. state, or local income taxes because the Shareholders report their share of the Trust’s income or loss on their income tax returns. The Trust files an income tax return in the U.S. federal jurisdiction and may file income tax returns in various U.S. states and foreign jurisdictions.
The Trust is required to determine whether its tax positions are more likely than not to be sustained on examination by the applicable taxing authority, based on the technical merits of the position. Tax positions not deemed to meet a more likely than not threshold would be recorded as a tax expense in the current year. As of March 31, 2025 and December 31, 2024, the Trust has determined that no provision for income taxes is required and no liability for unrecognized tax benefits has been recorded. The Trust does not expect that its assessment related to unrecognized tax benefits will materially change over the next 12 months. However, the Trust’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, the nexus of income among various tax jurisdictions; compliance with U.S. federal, U.S. state, and tax laws of jurisdictions in which the Trust operates; and changes in the administrative practices and precedents of the relevant authorities. The Trust is required to analyze all open tax years. Open tax years are those years that are open for examination by the relevant income taxing authority. As of December 31, 2024, the 2023, 2022, and 2021 tax years remain open for examination. There were no examinations in progress at period end.
6. Shareholders’ Equity
Subscriptions
As of November 18, 2021, the Sponsor to the Trust has closed the acceptance of all subscriptions to the Bitwise 10 Crypto Index Fund, pursuant to its rights under Sections 5 and 6 of the Trust Agreement.
In-Kind Subscriptions
The Sponsor may, at its sole discretion, accept Crypto Assets (“In-Kind Investments”) in lieu of, or in addition to, cash as payment for investment in the Trust. Such In-Kind Investments are valued using the same Crypto Asset prices as per the Trust’s valuation policy at any given valuation date as of 4:00 pm ET on the date of the subscription. As of November 18, 2021, the Sponsor to the Trust has closed the acceptance of all subscriptions to the Bitwise 10 Crypto Index Fund, pursuant to its rights under Sections 5 and 6 of the Trust Agreement.
Withdrawals
In connection with the Trust seeking approval for the quotation of its Shares on OTCQX, the Trust halted the withdrawal program on October 7, 2020.
7. Related Party Transactions
The Trust considers the Sponsor, its directors and employees to be related parties of the Trust. In consideration for the management services to be provided to the Trust, the Sponsor will receive from the Trust a management fee (the “Management Fee”) payable monthly, in arrears at a rate of 2.5% per annum.
The Sponsor may, in its discretion, waive, reduce, or rebate the Management Fee with respect to any Shareholder or group of Shareholders (which group may, but need not, include all Shareholders), including affiliates of the Sponsor; provided that such waiver, reduction, or rebate shall not increase the Management Fee payable in respect of any other Shareholder.
For the periods January 1, 2025 to March 31, 2025 and January 1, 2024 to March 31, 2024, the Shareholders were charged Management Fees of $7,859,042 and $5,878,198, respectively, of which $2,317,532 and $2,344,447 remained payable as of March 31, 2025 and 2024, respectively.
The Sponsor paid all expenses related to the initial offering, organization and start-up of the Trust and will not seek reimbursement for such amounts. The Sponsor is responsible for all ordinary operating expenses of the Trust, including administrative, custody, legal, audit, insurance, and other operating expenses.
Item 2. Management’s 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 unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. GAAP. The following discussion may contain forward-looking statements based on current expectations that involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under “Part II. Item 1A. Risk Factors,” “Statement Regarding Forward-Looking Statements” or in other sections of this Quarterly Report on Form 10-Q.
Trust Overview
The Trust is a Delaware Statutory Trust that issues units of fractional undivided beneficial interest in the form of shares, which represent ownership in the Trust ("Shares"). All Shareholders of “investor class” units received 10 Shares for each unit owned prior to the corporate action date, and all Shareholders of “institutional class” units received 10.12602229 Shares for each unit owned prior to the corporate action date.
The purpose of the Trust is to make it easier for an investor to invest in the Crypto Asset market as a whole, without having to pick specific tokens, manage a portfolio, and constantly monitor ongoing news and developments. Although the Shares are not the exact equivalent of a direct investment in Crypto Assets, they provide investors with an alternative that constitutes a relatively cost-effective, professionally managed way to participate in Crypto Asset markets. The Trust holds a Portfolio of Crypto Assets, referred to as the Portfolio Crypto Assets.
In furtherance of this objective, the activities of the Trust include (i) issuing Shares in exchange for subscriptions, (ii) selling or buying Portfolio Crypto Assets in connection with monthly rebalancing, (iii) selling Portfolio Crypto Assets as necessary to cover the Management Fee (as defined below) and/or any Organizational Expenses (as defined below), (iv) causing the Sponsor to sell Portfolio Crypto Assets upon any potential future termination of the Trust, and (v) engaging in all administrative and security procedures necessary to accomplish such activities in accordance with the provisions of the Trust Agreement of Bitwise 10 Crypto Index Fund (the “Trust Agreement”), and the Custodian Agreement with the Custodian (the “Custodian Agreement”).
The Trust’s principal investment objective is to invest in a Portfolio of Crypto Assets that tracks the Bitwise 10 Large Cap Crypto Index (the "Index") as closely as possible with certain exceptions determined by the Sponsor in its sole discretion. In addition, in the event the Portfolio Crypto Assets being held by the Trust present opportunities to generate returns in excess of the Index (for example, Airdrops, Emissions, forks, or similar network events) the Sponsor may also pursue these incidental opportunities on behalf of the Trust as part of the investment objective if in its sole discretion the Sponsor deems such activities to be possible and prudent. The Trust believes that it has met its principal investment objective. As of March 31, 2025, there was a correlation of 99.99% between the Portfolio Crypto Assets and the assets included in the Index. The Trust is aware that the market price of the Trust’s shares may deviate from the net asset value (“NAV”) of the shares, and the market price may at times be significantly above or below the shares’ NAV. The NAV of the Trust is calculated by summing the assets and liabilities and the NAV Per Share is calculated by dividing the total NAV by the shares outstanding. However, the Trust believes that any such deviation does not affect the Trust’s principal investment objective, as the Trust does not maintain or promote any business objectives related to the market trading price of its shares. Furthermore, under Regulation M, the Trust, as issuer of the Shares, is not permitted to take any actions that would seek to reconcile the NAV of the Shares and the market price of the Shares, and the Trust would not undertake business objectives that it was legally restricted from achieving.
The Trust and the Sponsor have entered into a limited, non-exclusive, revocable license agreement with Bitwise Index Services, LLC (the “Index Provider”), an affiliate of the Trust that is controlled by the same parent entity as the Sponsor, at no cost to the Trust or the Sponsor allowing the Trust to use the Index as the benchmark index for the Trust (the “License Agreement”).
The Shares may also trade at a substantial premium over, or a substantial discount to, the NAV Per Share as a result of price volatility, trading volume and closings of the exchanges on which the Sponsor purchases Portfolio Crypto Assets on behalf of the Trust due to fraud, failure, security breaches or otherwise. As a result of the foregoing, the price of the Shares as quoted on OTCQX has varied significantly from the value of the Trust’s Portfolio Crypto Assets Per Share since the Shares were approved for quotation on December 9, 2020.
The following charts show the percentage of Premium/(Discount) of the Shares as quoted on OTCQX and the Trust’s NAV and a comparison of the NAV of the Trust vs the market price as quoted on OTCQX for the period from December 9, 2020 to March 31, 2025.
From December 9, 2020 to March 31, 2025, the Shares of BITW traded at an average discount, based on closing prices at 4:00 pm ET, and estimated, unaudited, NAV Per Share of 16.43%. During that same period, the highest premium was 649.38% on December 16, 2020, and the lowest premium was 0.27% on August 4, 2021. During that same period, the highest discount was 67.80% on December 28, 2022, and the lowest discount was 0.09% on September 24, 2021. Given the lack of an ongoing redemption program and the holding period under Rule 144, there is no arbitrage mechanism to keep the Shares closely linked to the value of the Trust’s underlying holdings that may continue to have an adverse impact on investments in the Shares.
The following chart shows a comparison of the cumulative returns of the Index compared to the NAV of the Trust since inception to the period ended March 31, 2025.
Results of Operations
Financial Information for the Three Months ended March 31, 2025 and 2024
The following table sets forth statements of operations data for the three months ended March 31, 2025 and 2024.
Statement of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2025
(unaudited) |
|
|
2024
(unaudited) |
|
Income |
|
|
|
|
|
|
Other |
|
$ |
— |
|
|
$ |
— |
|
Expenses |
|
|
|
|
|
|
Management fee |
|
$ |
7,859,042 |
|
|
$ |
5,878,198 |
|
Transaction and other fees |
|
|
— |
|
|
|
27 |
|
Total Expenses |
|
|
7,859,042 |
|
|
|
5,878,225 |
|
Net investment gain (loss) |
|
|
(7,859,042 |
) |
|
|
(5,878,225 |
) |
Net realized and change in unrealized gain (loss) on investments |
|
|
|
|
|
|
Net realized gain (loss) from Crypto Assets |
|
|
8,866,176 |
|
|
|
1,516,665 |
|
Net change in unrealized appreciation (depreciation) from Crypto Assets |
|
|
(256,649,161 |
) |
|
|
426,245,688 |
|
Net realized and change in unrealized gain (loss) on investments |
|
|
(247,782,985 |
) |
|
|
427,762,353 |
|
Net increase (decrease) in Net Assets resulting from operations |
|
$ |
(255,642,027 |
) |
|
$ |
421,884,128 |
|
Comparison of the three-month periods ended March 31, 2025 and 2024
The following provides a discussion of the material items that impacted the Trust’s financial condition during the applicable period:
Management fees
The Sponsor charges the Trust a Management Fee payable monthly, in arrears, in an amount equal to 2.5% per annum (1/12th of 2.5% per month) of the net asset value of the Trust’s assets at the end of each month. Management fees for the three months ended March 31, 2025 were $7,859,042 compared to management fees for the three months ended March 31, 2024 were $5,878,198. These changes were due to an increase in the Trust’s net asset value due to an increase in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).
Net realized gain (loss) from Crypto Assets
Net realized gain from Crypto Assets for the three months ended March 31, 2025 was $8,866,176 compared to net realized gain from Crypto Assets for the three months ended March 31, 2024 was $1,516,665. These changes were due to fluctuations in the value of the Portfolio Crypto Assets sold during the respective period.
For the three-month period ended March 31, 2025, the Trust recorded net realized gains from sales of Bitcoin and Ethereum of approximately $9,422,313 and $1,425,651, respectively, among the gains and losses realized in smaller amounts from the sale of other Portfolio Crypto Assets. These sales were made as a result of rebalancing activity and sales of Portfolio Crypto Assets to raise money to pay the management fee.
For the three-month period ended March 31, 2024, the Trust recorded net realized gains from sales of Bitcoin and Ethereum of approximately $1,505,603 and $353,347, respectively, among the gains and losses realized in smaller amounts from the sale of other Portfolio Crypto Assets. These sales were made as a result of rebalancing activity and sales of Portfolio Crypto Assets to raise money to pay the management fee.
Net change in unrealized appreciation (depreciation) from Crypto Assets
Net change in unrealized depreciation from Crypto Assets for the three months ended March 31, 2025 was $256,649,161 compared to net change in unrealized appreciation from Crypto Assets for three months ended March 31, 2024 was $426,245,688. The primary factor for the change was related to an increase in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).
For the three-month period ended March 31, 2025 the Trust recorded net unrealized depreciation from Crypto Assets of Bitcoin and Ethereum of approximately $124,117,204 and $99,205,159, respectively, among the unrealized appreciation and depreciation in smaller amounts of other Portfolio Crypto Assets.
For the three-month period ended March 31, 2024 the Trust recorded net unrealized appreciation from Crypto Assets of Bitcoin and Ethereum of approximately $314,221,201 and $84,374,898, respectively, among the unrealized appreciation and depreciation in smaller amounts of other Portfolio Crypto Assets.
Net increase (decrease) in net assets resulting from operations
For the three-month period ended March 31, 2025, the Trust recorded a net decrease in net assets resulting from operations of $255,642,027, compared to a net increase in net assets resulting from operations of $421,884,128 for the period ended March 31, 2024. The primary factor that impacted 2025 net increase (decrease) in net assets resulting from operations compared to 2024 net increase (decrease) in net assets resulting from operations was a decrease in net realized gain and change in unrealized appreciation on investments with a net loss of $247,782,985 for the three-month period in 2025 compared to a net gain of $427,762,353 for the three-month period in 2024. The primary factor for the change was a decrease in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).
Management Fee
The Sponsor charges the Trust a Management Fee payable monthly, in arrears, in an amount equal to 2.5% per annum (1/12th of 2.5% per month) of the net asset value of the Trust’s assets at the end of each month.
The Sponsor is responsible for paying for all ordinary administrative and overhead expenses of managing the Trust, including payment of rent, custody charges or flat rate fees for holding the Trust’s assets charged by the Custodian and customary fees and expenses of the Trustee, Administrator and Auditor (including costs incurred for appraisal or valuation expenses associated with the preparation of the Trust’s financial statements, tax returns and other similar reports and excluding indemnification and extraordinary costs). The Sponsor also pays for all expenses associated with the operation of the Trust, including for example, fees associated with
quotation of the Shares on the OTCQX, registration with the SEC, and fees associated with retaining and maintaining the Transfer Agent. “Trading commissions” or trading fees paid to trading venues (also known as exchanges) or intermediaries (such as trading technology or Crypto Asset brokerage firms) that assist in trade execution for accessing Crypto Asset liquidity are charged to the Trust and may either be included in the cost of the Crypto Assets acquired by or disposed of by the Trust or may appear as explicit costs in addition to the price of the Crypto Asset. Trading fees and commissions are charged to the Trust and may appear in the financial statements as “Transaction and other fees” in the Financial Statements’ Statement of Operations in the Expenses category or may be included in the cost of the Crypto Assets acquired by the Trust.
There is no ceiling to the Trust’s expenses that the Sponsor will pay. However, the Sponsor retains the right to cause the Trust to pay indemnification and extraordinary expenses, and these Trust expenses are not covered by the Management Fee. The Trust may incur certain extraordinary expenses including, but not limited to, any non-customary costs and expenses including extraordinary costs of the Administrator and Auditor, costs of any litigation or investigation involving Trust activities, and workout and restructuring and indemnification expenses.
Shareholder Subscriptions
As of November 18, 2021, the Sponsor to the Trust has closed the acceptance of all subscriptions to the Bitwise 10 Crypto Index Fund, pursuant to its rights under Sections 5 and 6 of the Trust Agreement. At this time, the Sponsor has no plans to reopen subscriptions to the Bitwise 10 Crypto Index Fund. There were no shareholder subscriptions during the quarter ended March 31, 2025.
Capital Resources and Liquidity
The Trust generally holds only a very small cash balance, and is otherwise fully invested in order to maintain its investment objective of tracking the Index. When selling Portfolio Crypto Assets to pay the Management Fee, the Sponsor endeavors to sell an exact amount of Portfolio Crypto Assets needed in order to pay such expenses in order to minimize the Trust’s holdings of assets other than Portfolio Crypto Assets. As a consequence, the Sponsor expects the Trust will typically have a very small cash balance at each reporting period. Cash may also be held in the Trust after a subscription from Shareholder is funded (or sent to the Trust’s bank account) but not yet invested in Portfolio Crypto Assets, or after a redemption from a redeeming Shareholder has been processed (e.g., by raising cash through the sale of Portfolio Crypto Assets) but not yet paid to the redeeming Shareholder.
As described under the heading “Management Fee” above, in exchange for the Management Fee, the Sponsor is responsible for payment of almost all of the expenses incurred by the Trust. As a result, the only material ordinary expense of the Trust during the periods covered by this Registration Statement was the Management Fee. 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. While broader economic and market conditions, including evolving trade policies and tariffs, could impact the price of Portfolio Crypto Assets and contribute to increased market volatility, the Trust does not currently anticipate these factors will materially affect its liquidity needs. See Part I, Item 2 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Management Fee” for additional discussion of the Trust’s fees and expenses.
Value of Portfolio Crypto Assets
As described in the Risk Factors set out in our Form 10-K filed with the SEC on February 20, 2025, the prices of the various Portfolio Crypto Assets held by the Trust are subject to extreme volatility. This volatility had a significant impact on the value of the Portfolio Crypto Assets for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 and the year ended December 31, 2024.
As shown below in the “Schedules of Investments,” the increase in total investments in Crypto Assets from January 1, 2025 to March 31, 2025 was due primarily to an decrease in the value of the Portfolio Crypto Assets and to a lesser extent, the reinvestment of assets resulting from the December 31, 2024 Trust rebalance.
Shareholder Subscriptions and Redemptions
During the period from January 1, 2025 to March 31, 2025, there were no subscriptions or redemptions of Shares. There were 20,241,947 Shares outstanding as of March 31, 2025.
Schedules of Investments
The following provides details on the Portfolio Crypto Assets that comprise the Trust’s assets.
Three Months Ended March 31, 2025 and the Twelve Months Ended December 31, 2024
|
|
|
|
|
|
|
|
|
|
|
Bitcoin (BTC) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
10,632.1413 |
|
|
$ |
992,967,681 |
|
Purchases |
|
|
0.3576 |
|
|
|
30,000 |
|
Sales |
|
|
(143.8048 |
) |
|
|
(13,562,195 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
9,422,313 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(124,117,204 |
) |
Balance at March 31, 2025 |
|
|
10,488.6941 |
|
|
$ |
864,740,595 |
|
|
|
|
|
|
|
|
|
|
Ethereum (ETH) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
65,011.3388 |
|
|
$ |
217,163,876 |
|
Purchases |
|
|
501.9601 |
|
|
|
1,293,689 |
|
Sales |
|
|
(638.2864 |
) |
|
|
(2,130,000 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
1,425,651 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(99,205,159 |
) |
Balance at March 31, 2025 |
|
|
64,875.0125 |
|
|
$ |
118,548,057 |
|
|
|
|
|
|
|
|
|
|
Ripple (XRP) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
30,686,126.7901 |
|
|
$ |
64,339,602 |
|
Purchases |
|
|
512,557.6628 |
|
|
|
1,100,000 |
|
Sales |
|
|
(173,121.3200 |
) |
|
|
(521,888 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
221,118 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(279,892 |
) |
Balance at March 31, 2025 |
|
|
31,025,563.1329 |
|
|
$ |
64,858,940 |
|
|
|
|
|
|
|
|
|
|
Solana (SOL) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
256,477.2246 |
|
|
$ |
49,677,074 |
|
Purchases |
|
|
3,602.7100 |
|
|
|
828,543 |
|
Sales |
|
|
(1,301.5749 |
) |
|
|
(300,000 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(16,234 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(17,782,569 |
) |
Balance at March 31, 2025 |
|
|
258,778.3597 |
|
|
$ |
32,406,814 |
|
|
|
|
|
|
|
|
|
|
Cardano (ADA) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
19,192,702.8414 |
|
|
$ |
16,261,977 |
|
Purchases |
|
|
276,520.0843 |
|
|
|
175,002 |
|
Sales |
|
|
(15,915.3540 |
) |
|
|
(14,985 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(6,343 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(3,665,953 |
) |
Balance at March 31, 2025 |
|
|
19,453,307.5717 |
|
|
$ |
12,749,698 |
|
|
|
|
|
|
|
|
|
|
Chainlink (LINK) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
342,097.2780 |
|
|
$ |
6,828,604 |
|
Purchases |
|
|
— |
|
|
|
— |
|
Sales |
|
|
(810.2433 |
) |
|
|
(19,980 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
3,827 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(2,196,544 |
) |
Balance at March 31, 2025 |
|
|
341,287.0347 |
|
|
$ |
4,615,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalanche (AVAX) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
220,206.9730 |
|
|
$ |
7,885,612 |
|
Purchases |
|
|
— |
|
|
|
— |
|
Sales |
|
|
(1,571.2909 |
) |
|
|
(53,946 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(9,550 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(3,746,747 |
) |
Balance at March 31, 2025 |
|
|
218,635.6821 |
|
|
$ |
4,075,369 |
|
|
|
|
|
|
|
|
|
|
Sui (SUI) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
— |
|
|
$ |
— |
|
Purchases |
|
|
1,717,308.6000 |
|
|
|
7,041,318 |
|
Sales |
|
|
(71,047.9574 |
) |
|
|
(200,000 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(91,312 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(3,007,562 |
) |
Balance at March 31, 2025 |
|
|
1,646,260.6426 |
|
|
$ |
3,742,444 |
|
|
|
|
|
|
|
|
|
|
Litecoin (LTC) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
— |
|
|
$ |
— |
|
Purchases |
|
|
40,872.6900 |
|
|
|
5,238,687 |
|
Sales |
|
|
— |
|
|
|
— |
|
Net realized gain (loss) on investment |
|
|
— |
|
|
|
— |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(1,833,583 |
) |
Balance at March 31, 2025 |
|
|
40,872.6900 |
|
|
$ |
3,405,104 |
|
|
|
|
|
|
|
|
|
|
Polkadot (DOT) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
816,152.3229 |
|
|
$ |
5,433,942 |
|
Purchases |
|
|
— |
|
|
|
— |
|
Sales |
|
|
(5,143.4114 |
) |
|
|
(31,968 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(68,071 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(2,062,293 |
) |
Balance at March 31, 2025 |
|
|
811,008.9115 |
|
|
$ |
3,271,610 |
|
|
|
|
|
|
|
|
|
|
Bitcoin Cash (BCH) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
10,611.6785 |
|
|
$ |
4,625,525 |
|
Purchases |
|
|
— |
|
|
|
— |
|
Sales |
|
|
(10,611.6785 |
) |
|
|
(4,461,967 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
8,794 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(172,352 |
) |
Balance at March 31, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Uniswap (UNI) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
— |
|
|
$ |
— |
|
Purchases |
|
|
320,996.9789 |
|
|
|
4,351,306 |
|
Sales |
|
|
(320,996.9789 |
) |
|
|
(3,752,495 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(598,811 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
— |
|
Balance at March 31, 2025 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEAR Protocol (NEAR) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2025 |
|
|
680,674.8151 |
|
|
$ |
3,330,542 |
|
Purchases |
|
|
— |
|
|
|
— |
|
Sales |
|
|
(680,674.8151 |
) |
|
|
(3,326,212 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(1,425,208 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
1,420,878 |
|
Balance at March 31, 2025 |
|
|
— |
|
|
$ |
— |
|
As of March 31, 2025, Bitcoin represented 77.74% of the total Portfolio Crypto Assets held by the Trust, and Ethereum represented 10.66%, while the remaining 11.60% of the Portfolio Crypto Assets were composed of Ripple, Solana, Cardano, Chainlink, Avalanche, Sui, Litecoin, and Polkadot.
|
|
|
|
|
|
|
|
|
|
|
Bitcoin (BTC) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
10,998.0429 |
|
|
$ |
462,076,062 |
|
Purchases |
|
|
4.5683 |
|
|
|
297,000 |
|
Sales |
|
|
(370.4699 |
) |
|
|
(23,558,706 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
11,961,117 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
542,192,208 |
|
Balance at December 31, 2024 |
|
|
10,632.1413 |
|
|
$ |
992,967,681 |
|
|
|
|
|
|
|
|
|
|
Ethereum (ETH) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
67,221.7443 |
|
|
$ |
154,923,265 |
|
Purchases |
|
|
789.9930 |
|
|
|
2,410,001 |
|
Sales |
|
|
(3,000.3985 |
) |
|
|
(10,091,952 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
5,136,625 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
64,785,937 |
|
Balance at December 31, 2024 |
|
|
65,011.3388 |
|
|
$ |
217,163,876 |
|
|
|
|
|
|
|
|
|
|
Ripple (XRP) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
30,324,826.6436 |
|
|
$ |
18,825,652 |
|
Purchases |
|
|
1,299,451.9601 |
|
|
|
1,086,743 |
|
Sales |
|
|
(938,151.8136 |
) |
|
|
(544,454 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(186,855 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
45,158,516 |
|
Balance at December 31, 2024 |
|
|
30,686,126.7901 |
|
|
$ |
64,339,602 |
|
|
|
|
|
|
|
|
|
|
Solana (SOL) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
239,876.3681 |
|
|
$ |
25,143,841 |
|
Purchases |
|
|
23,587.0202 |
|
|
|
3,366,952 |
|
Sales |
|
|
(6,986.1637 |
) |
|
|
(1,053,930 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
71,840 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
22,148,371 |
|
Balance at December 31, 2024 |
|
|
256,477.2246 |
|
|
$ |
49,677,074 |
|
|
|
|
|
|
|
|
|
|
Cardano (ADA) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
19,777,360.7670 |
|
|
$ |
11,943,548 |
|
Purchases |
|
|
188,507.7753 |
|
|
|
98,968 |
|
Sales |
|
|
(773,165.7009 |
) |
|
|
(474,890 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(561,230 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
5,255,581 |
|
Balance at December 31, 2024 |
|
|
19,192,702.8414 |
|
|
$ |
16,261,977 |
|
|
|
|
|
|
|
|
|
|
Avalanche (AVAX) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
195,564.0766 |
|
|
$ |
7,859,720 |
|
Purchases |
|
|
32,862.8089 |
|
|
|
1,186,405 |
|
Sales |
|
|
(8,219.9125 |
) |
|
|
(307,043 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(31,652 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(821,818 |
) |
Balance at December 31, 2024 |
|
|
220,206.9730 |
|
|
$ |
7,885,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chainlink (LINK) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
309,529.3045 |
|
|
$ |
4,803,895 |
|
Purchases |
|
|
49,774.0999 |
|
|
|
815,809 |
|
Sales |
|
|
(17,206.1264 |
) |
|
|
(231,737 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(90,437 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
1,531,074 |
|
Balance at December 31, 2024 |
|
|
342,097.2780 |
|
|
$ |
6,828,604 |
|
|
|
|
|
|
|
|
|
|
Polkadot (DOT) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
732,019.7088 |
|
|
$ |
6,033,306 |
|
Purchases |
|
|
92,155.7549 |
|
|
|
705,143 |
|
Sales |
|
|
(8,023.1408 |
) |
|
|
(51,946 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(104,104 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(1,148,457 |
) |
Balance at December 31, 2024 |
|
|
816,152.3229 |
|
|
$ |
5,433,942 |
|
|
|
|
|
|
|
|
|
|
Bitcoin Cash (BCH) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
— |
|
|
$ |
— |
|
Purchases |
|
|
13,405.6895 |
|
|
|
5,655,501 |
|
Sales |
|
|
(2,794.0110 |
) |
|
|
(1,107,720 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(94,608 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
172,352 |
|
Balance at December 31, 2024 |
|
|
10,611.6785 |
|
|
$ |
4,625,525 |
|
|
|
|
|
|
|
|
|
|
NEAR Protocol (NEAR) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
— |
|
|
$ |
— |
|
Purchases |
|
|
1,288,276.7565 |
|
|
|
9,201,420 |
|
Sales |
|
|
(607,601.9414 |
) |
|
|
(2,964,735 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(1,485,265 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(1,420,878 |
) |
Balance at December 31, 2024 |
|
|
680,674.8151 |
|
|
$ |
3,330,542 |
|
|
|
|
|
|
|
|
|
|
Polygon (MATIC) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
5,257,194.4118 |
|
|
$ |
5,114,199 |
|
Purchases |
|
|
236,114.1348 |
|
|
|
229,000 |
|
Sales |
|
|
(5,493,308.5466 |
) |
|
|
(3,797,244 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(4,686,742 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
3,140,787 |
|
Balance at December 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
Litecoin (LTC) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
41,303.5713 |
|
|
$ |
3,075,464 |
|
Purchases |
|
|
193.7882 |
|
|
|
13,000 |
|
Sales |
|
|
(41,497.3595 |
) |
|
|
(3,876,820 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
1,588,611 |
|
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
(800,255 |
) |
Balance at December 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uniswap (UNI) |
|
|
|
Units |
|
|
Fair Value |
|
Balance at January 1, 2024 |
|
|
— |
|
|
$ |
— |
|
Purchases |
|
|
828,677.0698 |
|
|
|
9,173,913 |
|
Sales |
|
|
(828,677.0698 |
) |
|
|
(7,903,792 |
) |
Net realized gain (loss) on investment |
|
|
— |
|
|
|
(1,270,121 |
) |
Net change in unrealized appreciation (depreciation) on investment |
|
|
— |
|
|
|
— |
|
Balance at December 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
As of December 31, 2024, Bitcoin represented 72.56% of the total Portfolio Crypto Assets held by the Trust, and Ethereum represented 15.87%, while the remaining 11.57% of the Portfolio Crypto Assets were composed of Ripple, Solana, Cardano, Avalanche, Chainlink, Polkadot, Bitcoin Cash, and NEAR Protocol.
Off-Balance Sheet Arrangements
The Trust is not a party to any off-balance sheet arrangements.
Significant Accounting Policies
Basis of Presentation
The financial statements are expressed in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Trust is an investment company 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.
Transactions of Crypto Assets have been accounted for analogizing to existing accounting standards that management believes are appropriate to the circumstances.
Pursuant to the Statement of Cash Flows Topic of the Codification, the Trust qualifies for an exemption from the requirement to provide a statement of cash flows and has elected not to provide a statement of cash flows.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Cash represents cash deposits held at financial institutions and Crypto Asset exchanges. Cash in a bank deposit account, at times, may exceed U.S. federally insured limits. The Trust has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such bank deposits.
Investments and Valuation
Calculation of Valuation
Effective August 31, 2021, the process that the Sponsor developed for identifying a principal market (the “Principal Market”), as described in FASB ASC 820-10, which outlines the application of fair value accounting, was to begin by identifying publicly available, well established and reputable Crypto Asset exchanges selected by the Sponsor and its affiliates in their sole discretion, and then calculating, on each valuation period, the highest volume exchange during the 60 minutes prior to 4:00 pm ET for each asset (the “Principal Market Price”). In evaluating the markets that could be considered principal markets, the Trust considered whether or not the specific markets were accessible to the Trust, either directly or through an intermediary, at the end of each period.
Effective February 13, 2023, the Sponsor adapted a nearly identical principal market valuation process, with no material impact to the Trust, using a third-party valuation vendor, Lukka, Inc., to identify publicly available, well established and reputable Crypto Asset exchanges selected by Lukka, Inc. in their sole discretion, including Binance, Bitfinex, Bitflyer, Bitstamp, Bullish, Coinbase, Crypto.com, Gate.io, Gemini, HitBTC, Huobi, itBit, Kraken, KuCoin, LMAX, MEXC Global, OKX and Poloniex, and then calculating, on each valuation period, the highest volume exchange during the 60 minutes prior to 4:00 pm ET for each asset. In evaluating the markets that could be considered principal markets, the Trust considered whether or not the specific markets were accessible to the Trust, either directly or through an intermediary, at the end of each period.
The following provides an overview of the Principal Market and the Principal Market Prices for Portfolio Crypto Assets that comprised the majority of the Trust’s assets for the three month period ended March 31, 2025.
|
|
|
|
|
|
|
Crypto Asset |
|
Principal Market Price |
|
|
Principal
Market |
Bitcoin (BTC) |
|
$ |
82,445.02 |
|
|
Crypto.com |
Ethereum (ETH) |
|
$ |
1,827.33 |
|
|
Crypto.com |
Ripple (XRP) |
|
$ |
2.09 |
|
|
Coinbase |
Solana (SOL) |
|
$ |
125.23 |
|
|
Coinbase |
Cardano (ADA) |
|
$ |
0.66 |
|
|
Coinbase |
Chainlink (LINK) |
|
$ |
13.53 |
|
|
Coinbase |
Avalanche (AVAX) |
|
$ |
18.64 |
|
|
Coinbase |
Sui (SUI) |
|
$ |
2.27 |
|
|
Coinbase |
Litecoin (LTC) |
|
$ |
83.31 |
|
|
Coinbase |
Polkadot (DOT) |
|
$ |
4.03 |
|
|
Coinbase |
Valuation during the periods presented
During the periods presented, the trust carried its investments at fair value in accordance with FASB ASC Topic 820, Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Fair value investments are not adjusted for transaction costs. The Trust utilized this method for purposes of calculating the Trust’s NAV.
In determining fair value, the Trust uses a single, principal market valuation approach. A fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are to be used when available. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. These inputs may include (a) quoted prices for similar assets in active markets, (b) quoted prices for identical or similar assets in markets that are not active, (c) inputs other than quoted prices that are observable for the asset, or (d) inputs derived principally from or corroborated by observable market data by correlation or other means.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement.
The following summarizes the Trust’s assets accounted for at fair value at March 31, 2025.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Crypto Assets, at fair value |
|
$ |
1,112,414,538 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,112,414,538 |
|
The following summarizes the Trust’s assets accounted for at fair value at December 31, 2024.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in Crypto Assets, at fair value |
|
$ |
1,368,514,435 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,368,514,435 |
|
During the periods ended March 31, 2025 and December 31, 2024, there were no significant transfers into or out of any levels of the fair value hierarchy.
During the period, all of the Trust’s assets were considered “Level 1” valuations, because the valuations were based on quoted prices in markets that are active or for which all significant inputs are observable, either directly or indirectly. These inputs may include (a) quoted prices for similar assets in active markets, (b) quoted prices for identical or similar assets in markets that are not active, (c) inputs other than quoted prices that are observable for the asset, or (d) inputs derived principally from or corroborated by observable market data by correlation or other means.
The Trust generally records receipt of a new Crypto Asset created due to a Hard Fork at the time the Hard Fork is effective. The Trust’s methodology for determining effectiveness of the fork is when two or more recognized exchanges quote prices for the forked coin. Some exchanges and custodians do not honor Hard Forks or may honor Hard Forks in the future. In such cases, the Trust will record receipt of the new Crypto Asset at the time two or more recognized exchanges begin quoting prices for the asset. Although the Trust records the asset into its books and records at the time the fork is effective, as described above, the Trust’s custodian may take an extended period of time to make the forked asset available for transfer, and it may never make the forked asset available for transfer, which could lead to either the Trust holding the asset longer than it would otherwise hold the asset (if it was freely transferable), or a complete write-down in the value of the forked asset. The Trust does not allocate any of the original Crypto Asset’s cost to the new Crypto Asset and recognizes unrealized gains equal to the fair value of the new Crypto Asset received. During the period ended March 31, 2025, there were no hard forks recognized or not recognized.
There were no Hard Forks during the period that were not initially recognized but were subsequently recognized.
Crypto Asset transactions are recorded on the trade date. Realized gains and losses from Crypto Asset transactions are determined using the identified cost method. Any change in net unrealized gain or loss is reported in the statement of operations. Commissions and other trading fees are reflected as an adjustment to cost or proceeds at the time of the transaction.
The Trust intermittently receives Airdrops of new Crypto Assets. The use of Airdrops is generally to promote the launch and use of new Crypto Assets by providing a small amount of the new Crypto Assets to the private wallets or exchange accounts of holders of existing related Crypto Assets. Airdropped Crypto Assets can have substantially different Blockchain technology that has no relation to any existing Crypto Asset, and many Airdrops may be without value. The Trust will only record receipt of airdropped Crypto Assets if, when received, the airdropped Crypto Assets have value. Crypto Assets received from Airdrops have no cost basis and the Trust recognizes other income equal to the fair value of the new Crypto Asset received. There were no Airdrops recognized or unrecognized during the three month period ended March 31, 2025.
Income Taxes
The Trust is classified as a partnership for U.S. federal income tax purposes. The Trust does not record a provision for U.S. federal, U.S. state or local income taxes because the Shareholders report their share of the Trust’s income or loss on their income tax returns. The Trust files an income tax return in the U.S. federal jurisdiction and may file income tax returns in various U.S. states and foreign jurisdictions.
The Trust is required to determine whether its tax positions are more likely than not to be sustained on examination by the applicable taxing authority, based on the technical merits of the position. Tax positions not deemed to meet a more likely than not threshold would be recorded as a tax expense in the current year. As of March 31, 2025 and December 31, 2024, the Trust has determined that no provision for income taxes is required and no liability for unrecognized tax benefits has been recorded. The Trust does not expect that its assessment related to unrecognized tax benefits will materially change over the next 12 months. However, the Trust’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, the nexus of income among various tax jurisdictions; compliance with U.S. federal, U.S. state, and tax laws of jurisdictions in which the Trust operates; and changes in the administrative practices and precedents of the relevant authorities. The Trust is required to analyze all open tax years. Open tax years are those years that are open for examination by the relevant income taxing authority. As of December 31, 2024, the 2023, 2022, and 2021 tax years remain open for examination. There were no examinations in progress at period end.
Financial Instruments with Off-Balance-Sheet Risk
Crypto Assets
Crypto Assets are loosely regulated and there is no central marketplace for currency exchange. Supply is determined by a computer code, not by a central bank, and prices have been extremely volatile. Crypto Asset exchanges have been closed due to fraud, failure or security breaches. Any of the Trust’s assets that reside on an exchange that shuts down may be lost. At March 31, 2025, Crypto Assets of approximately $3,597,066 and no cash resided on exchanges. At December 31, 2024 approximately $7,226,139 and no cash resided on exchanges.
Several factors may affect the price of Crypto Assets, including, but not limited to: supply and demand, investors’ expectations with respect to the rate of inflation, interest rates, currency exchange rates or future regulatory measures (if any) that restrict the trading of Crypto Assets or the use of Crypto Assets as a form of payment. There is no assurance that Crypto Assets will maintain their long-term value in terms of purchasing power in the future, or that acceptance of Crypto Asset payments by mainstream retail merchants and commercial businesses will continue to grow.
Crypto Asset Regulation
As Crypto Assets have grown in popularity and market size, various countries and jurisdictions have begun to develop regulations governing the Crypto Assets industry. To the extent that future regulatory actions or policies limit the ability to exchange Crypto Assets or utilize them for payments, the demand for Crypto Assets will be reduced. Furthermore, regulatory actions may limit the ability of end-users to convert Crypto Assets into fiat currency (e.g., U.S. dollars) or use Crypto Assets to pay for goods and services. Such regulatory actions or policies would result in a reduction of demand, and in turn, a decline in the underlying Crypto Asset unit prices.
The effect of any future regulatory change on the Trust or Crypto Assets in general is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Trust’s investments in Crypto Assets.
Custody of Crypto Assets
The Custodian serves as the Trust’s Custodian for Crypto Assets for which qualified custody is available. The Custodian is subject to change in the sole discretion of the Sponsor. At March 31, 2025 and December 31, 2024, Crypto Assets of approximately $1,108,817,472 and $1,361,288,296 were held by the Custodian, respectively.
Crypto Asset Trading is Volatile and Speculative
Crypto Assets represent a speculative investment and involve a high degree of risk. Prices of Crypto Assets have fluctuated widely for a variety of reasons including uncertainties in government regulation and may continue to experience significant price fluctuations. If Crypto Asset markets continue to be subject to sharp fluctuations, Shareholders may experience losses as the value of the Trust’s investments decline. Even if Shareholders are able to hold their Shares in the Trust for the long-term, their Shares may never generate a profit, since Crypto Asset markets have historically experienced extended periods of flat or declining prices, in addition to sharp fluctuations.
Over-the-Counter Transactions
Some of the markets in which the Trust may execute its transactions are “over-the-counter” or “interdealer” markets. The participants in such markets are typically not subject to credit evaluation and regulatory oversight as are members of “exchange-based” markets. This exposes the Trust to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Trust to suffer a loss. Such “counterparty risk” is accentuated for Crypto Assets where the Trust has concentrated its transactions with a single or small group of counterparties. The Trust is not restricted from dealing with any particular counterparty or from concentrating any or all of its transactions with one counterparty. Moreover, the Trust has no internal credit function that evaluates the creditworthiness of its counterparties. The ability of the Trust to transact business with any one or number of counterparties, the lack of any meaningful and independent evaluation of such counterparty’s financial capabilities and the absence of a regulated market to facilitate settlement may increase the potential for losses by the Trust.
No FDIC or SIPC Protection
The Trust is not a banking institution or otherwise a member of the FDIC or the SIPC. Accordingly, deposits or assets held by the Trust are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. The Trust’s Crypto Asset Custodian does however carry bespoke insurance policies related to the Crypto Assets over which it provides custody.
The Trust must adapt to technological change in order to secure and safeguard client accounts. While management believes they have developed an appropriate proprietary security system reasonably designed to safeguard the Trust’s Crypto Assets from theft, loss, destruction or other issues relating to hackers and technological attack, such assessment is based upon known technology and threats. To the extent that the Trust is unable to identify and mitigate or stop new security threats, the Trust’s Crypto Assets may be subject to theft, loss, destruction or other attack, which could have a negative impact on the performance of the Trust or result in loss of the Trust’s Crypto Assets.
Risks Associated with a Crypto Assets Majority Control
Since Crypto Assets are virtual and transactions in such currencies reside on distributed networks, governance of the underlying distributed network could be adversely altered should any individual or group obtain 51% control of the distributed network. Such control could have a significant adverse effect on either the ownership or value of the Crypto Asset.
Transaction Authentication
As of the date of these financial statements, the transfer of Crypto Assets from one party to another typically relies on an authentication process by an outside party known as a Miner or Validator. In exchange for compensation, the Miner or Validator will authenticate the transfer of the currency through the solving of a complex algorithm known as a proof of work, or will vouch for the transfer through other means, such as a proof of stake. Effective transfers of and therefore realization of Crypto Assets and tokens are dependent on interactions from these Miners or Validators. In the event that there were a shortage of Miners or Validators to perform this function, that shortage could have an adverse effect on either the fair value or realization of the Crypto Assets.
Other Risks
Management continues to evaluate the impact of current or anticipated military conflict, including between Russia and Ukraine, terrorism, sanctions and other geopolitical events as well as adverse developments in the economy, the capital markets and the Blockchain markets, including rising energy costs, inflation and interest rates, in the United States and globally, and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics, and has concluded that while it is reasonably possible that these events could have a negative effect on the financial performance and operations of the Trust, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Trust Agreement does not authorize the Trustee to borrow for payment of the Trust’s ordinary expenses. The Trust does not engage in transactions in foreign currencies which could expose the Trust or holders of Shares to any foreign currency related market risk. The Trust does not invest in derivative financial instruments and has no foreign operations or long-term debt instruments.
Item 4. Controls and Procedures
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 SEC’s rules and forms, and that such information is accumulated and communicated to the Principal Executive Officer and Principal Financial and Accounting Officer of the Sponsor performing functions equivalent to those a principal executive officer and principal financial and accounting officer of the Trust would perform if the Trust had any officers, and to the Board of Directors of the Sponsor, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of the Principal Executive Officer and the Principal Financial and Accounting Officer of the Sponsor, the Sponsor conducted an evaluation of the Trust's disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based on this evaluation, the Principal Executive Officer and the Principal Financial and Accounting Officer of the Sponsor concluded that the Trust’s disclosure controls and procedures were effective as of the end of the period covered by this report.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Changes in Internal Control Over Financial Reporting
There was no change in the Trust’s internal controls over financial reporting that occurred during the Trust’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, these internal controls.