Ark 21Shares Bitcoin ETF 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures The duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, as appropriate to allow timely decisions regarding required disclosure. 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. Exemption from Management’s Report on Internal Control over Financial Reporting This annual report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. Item 9B. Other Information No officers or directors of the Sponsor have adopted , modified, or terminated trading plans under either a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933) during the period from December 12, 2023 (initial seed creation date) through December 31, 2023. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 56 PART III Item 10. Directors, Executive Officers, and Corporate Governance The Trust does not have any directors, officers, or employees. The following persons, in their respective capacities as directors or executive officers of the Sponsor, a Delaware limited liability company, perform certain functions with respect to the Trust that, if the Trust had directors or executive officers, would typically be performed by them. Hany Rashwan is CEO of the Sponsor and Ophelia Snyder is President and Chief Financial Officer of the Sponsor. Hany Rashwan , 33, co-founded the parent organization of Sponsor and 21Shares AG in 2018 and has served as its CEO since inception. In addition to co-founding 21Shares AG, Mr. Rashwan is a serial entrepreneur and Forbes 30 Under 30 alum. He previously founded social commerce company, Ribbon, and enterprise fintech company, Payout. He was born and raised in Egypt and the United States and holds a bachelor’s in history from Columbia University. Ophelia Snyder , 31, co-founded the parent organization of Sponsor and 21Shares AG in 2018 and has served as its President since inception. In addition to co-founding 21Shares AG. Ms. Snyder is an EY Entrepreneurial Winning Woman EMEIA, Forbes 30 Under 30 alum, and was named on Bilanz’s Top 100 Bankers of Switzerland list. She began her career working in venture capital and then investment banking. She was born and raised in the United States and Italy and attended Stanford University and received her Master of Business Administration from the New York University Stern School of Business. The Trust does not have a code of ethics as it does not have any directors, officers, or employees. The Sponsor has a code of ethics (the “Code of Ethics”) that applies to its executive officers, including its Principal Executive Officer and Principal Financial Officer, who perform certain functions with respect to the Trust that, if the Trust had executive officers would typically be performed by them. The Sponsor’s Policies are in place and require that the Sponsor eliminate, mitigate, or otherwise disclose conflicts of interest. Additionally, the Sponsor has adopted policies and procedures requiring that certain applicable personnel pre-clear personal trading activity in which bitcoin is the referenced asset. The Sponsor has also implemented an Information Barrier Policy restricting certain applicable personnel from obtaining sensitive information. The Sponsor believes that these controls are reasonably designed to mitigate the risk of conflicts of interest and other impermissible activity. The Code of Ethics is available on request, free of charge, by writing the Sponsor at etf@21shares.com or calling the Sponsor at (646) 370-6016. Item 11. Executive Compensation The Trust does not have directors or executive officers. The only ordinary expense paid by the Trust is the Sponsor’s fee. For the period from December 12, 2023 (initial seed creation date) through December 31, 2023, the Trust did not incur any Sponsor’s fee. During the year ended December 31, 2023, the Trust did not incur Sponsor’s fees. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security Ownership of Certain Beneficial Owners There are no persons known by the Trust to own directly or indirectly beneficially more than 5% of the outstanding Shares of the Trust as of March 26, 2024. Security Ownership of Management The Trust does not have directors or executive officers. 57 Change in Control Neither the Sponsor nor the Trustee knows of any arrangements which may subsequently result in a change in control of the Trust. Securities Authorized for Issuance under Equity Compensation Plans The Trust has no securities authorized for issuance under equity compensation plans. Item 13. Certain Relationships and Related Transactions See Item 11. Item 14. Principal Accounting Fees and Services Fees for services performed by Cohen & Company, Ltd., as paid by the Sponsor from the Sponsor fee, for the period ended December 31, 2023, were: 2023 Audit fees $ 9,500 Audit-related fees $ - Tax fees $ - All other fees $ - Total $ 9,500 In the table above, in accordance with the SEC’s definitions and rules, Audit Fees are fees paid to Cohen & Company, Ltd. for professional services for the audit of the Trust’s financial statements included in the Form 10-K and review of financial statements included in the Forms 10-Q, and for services that are normally provided by the accountants in connection with regulatory filings or engagements. Audit Related Fees are fees for assurance and related services that are reasonably related to the performance of the audit or review of the Trust’s financial statements. Approval of Independent Registered Public Accounting Firm Services and Fees The Sponsor approved all of the services provided by Cohen & Company, Ltd. described above. The Sponsor pre-approved all audit services of the independent registered public accounting firm, including all engagement fees and terms. 58 PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements See Index to Financial Statements on page F-1. (a)(2) Financial Statement Schedules No financial statement schedules are filed herewith because (i) such schedules are not required or (ii) the information required has been presented in the aforementioned financial statements. (a)(3) Exhibits The following documents are filed herewith or incorporated herein and made a part of this Annual Report: No. Exhibit Description 3.1 Trust Agreement of ARK 21Shares Bitcoin ETF (1) 3.2 Form of Amended and Restated Trust Agreement (2) 3.3 Certificate of Trust (1) 4.1 Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (5) 10.1 Form of Sponsor Agreement (4) 10.2 Form of Authorized Participant Agreement (2) 10.3 Form of Support Services Agreement (1) 10.4 Form of Prime Broker Agreement (2) 10.5 Form of Custodial Services Agreement (included as Exhibit A to Form of Prime Broker Agreement) (1) 10.6 Form of Fund Administration and Accounting Agreement (1) 10.7 Form of Transfer Agency and Services Agreement (1) 10.8 Form of Index Licensing Agreement (1) 10.9 Form of Marketing Agent Agreement (1) 10.10 Form of Cash Custody Agreement (1) 10.11 Subscription Agreement (1) 10.12 Initial Seed Capital Subscription Agreement (4) 31.1 Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (5) 31.2 Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (5) 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 (5) 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 (5) 97.1 Executive Officer Incentive-Based Compensation Clawback Policy (5) 101.INS Inline XBRL Instance Document.* 101.SCH Inline XBRL Taxonomy Extension Schema Document.* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.* 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.* 104 Cover Page Interactive Data File (Embedded as Inline XBRL document and contained in Exhibit 101).* (1) Incorporated by reference to Pre-Effective Amendment No. 4 filed by the Registrant on December 18, 2023. (2) Incorporated by reference to Pre-Effective Amendment No. 5 filed by the Registrant on December 28, 2023. (3) Incorporated by reference to Pre-Effective Amendment No. 6 filed by the Registrant on January 8, 2024. (4) Incorporated by reference to Pre-Effective Amendment No. 8 filed by the Registrant on January 9, 2024. (5) Filed herewith. Item 16. Form 10-K Summary None. 59 GLOSSARY OF DEFINED TERMS “Advisers Act”: The Investment Advisers Act of 1940. “1933 Act”: The Securities Act of 1933. “1940 Act”: Investment Company Act of 1940. “Administrator”: The Bank of New York Mellon. “Authorized Participant”: One that purchases or redeems Baskets from or to the Trust. “Basket”: A block of 5,000 Shares used by the Trust to issue or redeem Shares. “Basket Deposit”: The total deposit required to create each Basket. “Bitcoin”: Is a system for decentralized digital value exchange that is designed to enable units of bitcoin to be transferred across borders without the need for currency conversion. Bitcoin is not legal tender. The supply of bitcoin is not determined by a central government, but rather by an open-source software program that limits both the total amount of bitcoin that will be produced and the rate at which it is released into the network. The responsibility for maintaining the official ledger of who owns what bitcoin and for validating new bitcoin transactions is not entrusted to any single central entity. Instead, it is distributed among the network’s participants. “Bitcoin Counterparty”: Designated third party, who is not an Authorized Participant but who may be an affiliate of an Authorized Participant, or the Prime Broker or Lender, as applicable, with whom the Sponsor has entered into an agreement on behalf of the Trust, that will, acting as a counterparty, deliver, receive or convert to U.S. dollars the bitcoin related to the Authorized Participant’s creation or redemption order. “Bitcoin Custodian”: Coinbase Custody Trust Company, LLC. “Blockchain (or Bitcoin blockchain)”: the public transaction ledger of the Bitcoin network on which miners or mining pools solve algorithmic equations allowing them to add records of recent transactions (called “blocks”) to the chain of transactions in exchange for an award of bitcoin from the Bitcoin network and the payment of transaction fees, if any, from users whose transactions are recorded in the block being added. “Business Day”: Any day other than a day when the Exchange or the New York Stock Exchange is closed for regular trading. “CEA”: Commodity Exchange Act of 1936. “CFTC”: Commodity Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and options in the United States. “Code”: Internal Revenue Code of 1986, as amended. “DTC”: The Depository Trust Company. DTC will act as the securities depository for the Shares. “DTC Participant”: An entity that has an account with DTC. “Exchange”: Cboe BZX Exchange, Inc. “Exchange Act”: The Securities Exchange Act of 1934, as amended. “FINRA”: Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers. 60 “GAAP”: U.S. generally accepted accounting principles. “Indirect Participants”: Banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. “Incidental Rights”: Rights to acquire, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Trust’s ownership of bitcoin and arise without any action of the Trust, or of the Sponsor or Sub-Adviser on behalf of the Trust. “IRS”: U.S. Internal Revenue Service. “IR Virtual Currency”: Virtual currency tokens, or other assets or rights, acquired by the Trust through the exercise (subject to the applicable provisions of the Trust Agreement) of any Incidental Right. “Lender”: Coinbase Credit, Inc. “Marketing Agent”: Foreside Global Services, LLC. “NAV”: Net asset value of the Trust. “NAV per Share”: Net asset value of the Trust per Share. “NFA”: National Futures Association. “Prime Broker”: Coinbase, Inc. “Principal Market NAV”: Net asset value of the Trust determined on a GAAP basis. “Principal Market NAV per Share”: Net asset value of the Trust per Share determined on a GAAP basis. “Redemption Order Date”: The date a redemption order is received in satisfactory form by the Marketing Agent. “Register”: The record of all shareholders and holders of the Shares in certificated form kept by the Administrator. “SEC”: The U.S. Securities and Exchange Commission. “Seed Capital Investor”: 21Shares US LLC, a Delaware limited liability company. “Seed Creation Baskets”: Shares of the Trust purchased by the Seed Capital Investor. “Shares”: Common shares representing fractional undivided beneficial interests in the Trust. “Shareholders”: Holders of Shares. “Sponsor”: 21Shares US LLC, a Delaware limited liability company. “Sub-Adviser”: ARK Investment Management LLC, a Delaware limited liability company. “Transfer Agent”: The Bank of New York Mellon. “Trust”: ARK 21Shares Bitcoin ETF. “Trust Agreement”: Amended and Restated Trust Agreement of ARK 21Shares Bitcoin ETF. “Trustee”: Delaware Trust Company, a Delaware trust company. “You”: The owner or holder of Shares. 61 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 thereunto duly authorized. ARK 21Shares Bitcoin ETF (Registrant) By: 21Shares US LLC, its Sponsor Signature Title (Capacity) Date /s/ Hany Rashwan Chief Executive Officer March 26, 2024 Hany Rashwan (Principal Executive Officer) /s/ Ophelia Snyder Principal Financial Officer and March 26, 2024 Ophelia Snyder Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities* and on the dates indicated. Signature Title (Capacity) Date /s/ Hany Rashwan Chief Executive Officer March 26, 2024 Hany Rashwan (Principal Executive Officer) /s/ Ophelia Snyder Principal Financial Officer and March 26, 2024 Ophelia Snyder Principal Accounting Officer 62 Ark 21shares Bitcoin ETF index to financial statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 925 ) F-2 Statement of Assets and Liabilities F-3 Statement of Changes in Net Assets F-4 Statement of Cash Flows F-5 Notes to Financial Statements F-6 F- 1 Report of Independent Registered Public Accounting Firm To the Sponsor and Shareholder of ARK 21Shares Bitcoin ETF Opinion on the Financial Statements We have audited the accompanying statement of assets and liabilities of ARK 21Shares Bitcoin ETF (the “Trust”) as of December 31, 2023, and the related statements of changes in net assets and cash flows, and the related notes, for the period December 12, 2023 (initial seed creation date) through December 31, 2023 (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, 2023, and the results of its changes in its net assets and its cash flows for the period December 12, 2023 (initial seed creation date) through December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Trust’s financial statements based on our audit. 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 audit 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 its internal control over financial reporting. As part of our audit, 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 Trust’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit includes 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 procedures included confirmation of cash owned as of December 31, 2023, by correspondence with the custodian. Our audit 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 audit provides a reasonable basis for our opinion. We have served as the Trust’s auditor since 2023. /s/ Cohen & Company, Ltd . Cohen & Company, Ltd. Hunt Valley, Maryland March 26, 2024 We have served as the auditor of the Trust since its commencement of operations. F- 2 ark 21shares Bitcoin ETF STATEMENT OF ASSETS AND LIABILITIES At December 31, 2023 December 31, 2023 Assets: Cash $ 100 Total assets 100 Liabilities: Total liabilities - Net Assets $ 100 Shares issued and outstanding, no par value, unlimited amount authorized 2 Net asset value per Share $ 50.00 The accompanying notes are an integral part of the Financial Statements. F- 3 ark 21shares Bitcoin ETF STATEMENT OF CHANGES IN NET ASSETS For the period December 12, 2023 (initial seed creation date) through December 31, 2023 Net Assets, beginning of period For the period December 12, 2023 (initial seed creation date) through December 31, 2023 Increase (decrease) in net assets resulting from operations: $ – Net investment loss – Net realized gain (loss) on investment in bitcoin – Net change in unrealized appreciation (depreciation) – Net increase (decrease) in net assets resulting from operations – Increase (decrease) in net assets resulting from capital share transactions: Contributions for Shares issued 100 ^ Distributions for Shares redeemed – Net increase in net assets resulting from capital share transactions 100 Increase (decrease) in net assets 100 Net Assets, end of period $ 100 Shares issued and redeemed Shares issued 2 ^ Shares redeemed – Net increase (decrease) in Shares issued and outstanding 2 ^ The amount represents the initial seed on December 12, 2023. The accompanying notes are an integral part of the Financial Statements. F- 4 ark 21shares Bitcoin ETF STATEMENT OF CASH FLOWS For the period December 12, 2023 (initial seed creation date) through December 31, 2023 For the period December 12, 2023 (initial seed creation date) through December 31, 2023 Cash Provided (used in) by Operating Activities: Net increase (decrease) in net assets resulting from operations $ – Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: Cost of bitcoin purchased – Proceeds from bitcoin sold – Net cash provided by (used in) operating activities – Cash flow Provided by Financing Activities: Shares issued 100 ^ Shares redeemed – Net cash provided by (used in) financing activities 100 Cash Net increase (decrease) in cash 100 Cash, beginning of period – Cash, end of period $ 100 ^ The amount represents the initial seed on December 12, 2023. The accompanying notes are an integral part of the Financial Statements. F- 5 ARK 21Shares Bitcoin ETF Notes to Financial Statements 1. Organization The ARK 21Shares Bitcoin ETF (the “Trust”) is a Delaware statutory trust, formed on June 22, 2021, pursuant to the Delaware Statutory Trust Act (“DSTA”). The Trust operates pursuant to an Amended and Restated Trust Agreement (the “Trust Agreement”). Delaware Trust Company, a Delaware trust company, is the trustee of the Trust (the “Trustee”). The Trust is managed and controlled by 21 Shares US LLC (the “Sponsor”). The Sponsor is a limited liability company formed in the state of Delaware on June 16, 2021, and is a wholly owned subsidiary of Jura Pentium Inc., whose ultimate parent company is Amun Holdings Limited. Coinbase Custody Trust Company, LLC (“Coinbase Custody”) (the “Custodian”) is the custodian for the Trust and will hold all of the Trust’s bitcoin on the Trust’s behalf. The transfer agent (the “Transfer Agent”) and the administrator for the Trust (the “Administrator”) is Bank of New York Mellon. The Trust is an exchange-traded fund (“ETF”) that issues units of beneficial interest (the “Shares”) representing fractional undivided beneficial interests in its net assets that trade on the Cboe BZX Exchange, Inc. (the “Exchange”). The Shares were listed for trading on the Exchange on January 10, 2024, under the ticker symbol “ARKB”. The Trust’s investment objective is to seek to track the performance of bitcoin, as measured by the performance of the CME CF Bitcoin Reference Rate—New York Variant (the “Index”), adjusted for the Trust’s expenses and other liabilities. CF Benchmarks Ltd. is the administrator for the Index (the “Index Provider”). The Index is designed to reflect the performance of bitcoin in U.S. dollars. In seeking to achieve its investment objective, the Trust holds bitcoin at its Custodian and values its Shares daily based on the Index. ARK Investment Management LLC (the “Sub-Adviser”) is the sub-adviser of the Trust and provides assistance in the marketing of the Shares. The Trust’s Shares are neither interests in nor obligations of the Sponsor, the Sub-Adviser, or the Trustee. The Trust is an “emerging growth company” as that term is used in the Securities Act of 1933, as amended (the “Securities Act”), and, as such, the Trust may elect to comply with certain reduced public company reporting requirements. On December 12, 2023, the Sponsor, in its capacity as Seed Capital Investor, subject to conditions, purchased Seed Creation Baskets comprising 2 Shares at a per-Share price of $ 50.00 , as described in “Seed Capital Investor.” Total proceeds to the Trust from the sale of these Seed Creation Baskets were $ 100 . Delivery of the Seed Creation Baskets was made on December 12, 2023. These Seed Creation Baskets were redeemed for cash on or about January 5, 2024. On January 9, 2024 (the “Seed Capital Purchase Date”), the Seed Capital Investor purchased the initial Seed Creation Baskets comprising 10,000 Shares (the “Initial Seed Creation Baskets”) at a per-share price of $ 46.88 . Total proceeds to the Trust from the sale of the Seed Creation Baskets were $ 468,806.44 . On January 9, 2024, the Trust purchased 10 bitcoins with the proceeds of the Seed Creation Baskets by transacting with a Bitcoin Counterparty to acquire bitcoin on behalf of the Trust in exchange for cash provided by the Sponsor in its capacity as Seed Capital Investor. These Seed Creation Baskets were redeemed for cash on or about January 19, 2024. 2. Significant Accounting Policies Basis of Accounting The Financial Statement has been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP” or “GAAP”). The Trust qualifies as an investment company solely for accounting purposes and not for any other purpose and follows the accounting and reporting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies, but is not registered, and is not required to be registered, as an investment company under the Investment Company Act of 1940, as amended. The Trust uses fair value as its method of accounting for bitcoin in accordance with its classification as an investment company for accounting purposes. The preparation of the financial statement in conformity with US GAAP requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from such estimates as additional information becomes available or actual amounts may become determinable. Should actual results differ from those previously recognized, the recorded estimates will be revised accordingly with the impact reflected in the operating results of the Trust in the reporting period in which they become known. F- 6 Cash Cash includes non-interest bearing, non-restricted cash maintained with one financial institution that does not exceed U.S. federally insured limits. Investment Valuation US GAAP defines fair value as the price the Trust would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Trust’s policy is to value investments held at fair value. The Trust identifies and determines the bitcoin principal market (or in the absence of a principal market, the most advantageous market) for GAAP purposes consistent with the application of the fair value measurement framework in FASB ASC 820. A principal market is the market with the greatest volume and activity level for the asset or liability. The determination of the principal market will be based on the market with the greatest volume and level of activity that can be accessed. The Trust obtains relevant volume and level of activity information and based on initial analysis will select an exchange market as the Trust’s principal market. The NAV and NAV per Share will be calculated using the fair value of bitcoin based on the price provided by this exchange market, as of 4:00 p.m. ET on the measurement date for GAAP purposes. The Trust will update its principal market analysis periodically and as needed to the extent that events have occurred, or activities have changed in a manner that could change the Trust’s determination of the principal market. Various inputs are used in determining the fair value of assets and liabilities. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. The level of a value determined for an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2: 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; and Level 3: Unobservable inputs, including the Trust’s assumptions used in determining the fair value of investments, where there is little or no market activity for the asset or liability at the measurement date. The cost basis of the investment in bitcoin recorded by the Trust for financial reporting purposes is the fair value of bitcoin at the time of transfer. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors. Investment Transactions The Trust considers investment transactions to be the receipt of bitcoin for Share creations and the delivery of bitcoin for Share redemptions or for payment of expenses in bitcoin. The Trust records its investments transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in bitcoin. Calculation of Net Asset Value (NAV) and NAV per Share On each business day, as soon as practicable after 4:00 p.m. (Eastern Time), the net asset value of the Trust is obtained by subtracting all accrued fees, expenses and other liabilities of the Trust from the fair value of the bitcoin and other assets held by the Trust. The Trustee computes the net asset value per Share by dividing the net asset value of the Trust by the number of Shares outstanding on the date the computation is made. F- 7 Federal Income Taxes The Sponsor and the Trustee will 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, if the Trust operates as expected, the Trust should be classified as a “grantor trust” for U.S. federal income tax purposes and the Trust itself should not be subject to U.S. federal income tax. Each beneficial owner of Shares will be treated as directly owning its pro rata Share of the Trust’s assets and a pro rata portion of the Trust’s income, gain, losses and deductions will “flow through” to each beneficial owner of Shares. If the Trust sells bitcoin (for example, to pay fees or expenses), such a sale is a taxable event to Shareholders. Upon a Shareholder’s sale of its Shares, the Shareholder will be treated as having sold the pro rata share of the bitcoin held in the Trust at the time of the sale and may recognize gain or loss on such sale. The Sponsor has reviewed the tax positions as of December 31, 2023, and has determined that no provision for income tax is required in the Trust’s financial statements. 3. Trust Expenses The Trust pays the unitary Sponsor Fee of 0.21 % of the Trust’s bitcoin holdings. The Sponsor Fee is paid by the Trust to the Sponsor as compensation for services performed under the Trust Agreement. The Sponsor is waiving the entire Sponsor Fee for (i) a six-month period which commenced on January 11, 2024 (the day the Trust’s Shares were initially listed on the Exchange), or (ii) the first $ 1 billion of Trust assets, whichever comes first. The Sponsor has agreed to pay all operating expenses (except for litigation expenses and other extraordinary expenses) out of the Sponsor Fee. Operating expenses assumed by the Sponsor include (i) fees to the Sub-Adviser; (ii) the Marketing Fee, (iii) fees to the administrator, if any, (iv) fees to the bitcoin Custodian, (v) fees to the Transfer Agent, (vi) fees to the Trustee, (vii) the fees and expenses related to any future listing, trading or quotation of the Shares on any listing exchange or quotation system (including legal, marketing and audit fees and expenses), (viii) ordinary course legal fees and expenses but not litigation-related expenses, (ix) audit fees, (x) regulatory fees, including, if applicable, any fees relating to the registration of the Shares under the 1933 Act or Exchange Act, (xi) printing and mailing costs; (xii) costs of maintaining the Trust’s website and (xiii) applicable license fees (each, a “Sponsor-paid Expense,” and together, the “Sponsor-paid Expenses”), provided that any expense that qualifies as an Additional Trust Expense (as defined below) will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense. The Sponsor will not, however, assume certain extraordinary, non-recurring expenses that are not Sponsor-paid Expenses, including, but not limited to, taxes and governmental charges, 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, any indemnification of the bitcoin Custodian, Administrator or other agents, service providers or counter-parties of the Trust, the fees and expenses related to the listing, and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters (collectively, “Additional Trust Expenses”). Of the Sponsor-paid Expenses, ordinary course legal fees and expenses shall be subject to a cap of $ 100,000 per annum. In the Sponsor’s sole discretion, all or any portion of a Sponsor-paid Expense may be re-designated as an Additional Trust Expense. To the extent that the Sponsor does not voluntarily assume expenses, they will be the responsibility of the Trust. The Sponsor also pays the costs of the Trust’s organization and offering. The Trust is not obligated to repay any such costs related to the Trust’s organization and offering paid by the Sponsor. 4. Creation and Redemption of Shares The Trust creates and redeems Shares on a continuous basis but only in Creation Units consisting of 5,000 Shares or multiples thereof. Only Authorized Participants, which are registered broker-dealers who have entered into written agreements with the Sponsor and the Administrator, can place orders. The Trust engages in bitcoin transactions for converting cash into bitcoin (in association with purchase orders) and bitcoin into cash (in association with redemption orders). The Trust conducts its bitcoin purchase and sale transactions by, in its sole discretion, choosing to trade directly with third parties (each, a “bitcoin Trading Counterparty”), who are not registered broker-dealers pursuant to written agreements between such bitcoin Trading Counterparties and the Trust, or choosing to trade through the Prime Broker acting in an agency capacity with third parties through its Coinbase Prime service pursuant to the Prime Broker Agreement. A bitcoin Trading Counterparty may be an affiliate of an Authorized Participant. The Authorized Participants deliver only cash to create Shares and receive only cash when redeeming Shares. Further, Authorized Participants will 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. F- 8 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 will not be acting as an agent of the Authorized Participant with respect to the delivery of the bitcoin to the Trust or acting 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 will not be acting as an agent of the Authorized Participant with respect to the receipt of the bitcoin from the Trust or acting at the direction of the Authorized Participant with respect to the receipt of the bitcoin from the Trust. The third-party is unaffiliated with the Trust and the Sponsor. 5. Related Parties The Sponsor is a related party to the Trust. The Trust’s operations are supported by its Sponsor, who is in turn supported by its parent company and affiliated companies and external service providers. As of December 31, 2023, the Sponsor owned 2 Shares of the Trust. 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. 6. Commitments and Contingent Liabilities In the normal course of business, the Trust may enter into contracts that contain a variety of general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust which have not yet occurred and cannot be predicted with any certainty. However, the Sponsor believes the risk of loss under these arrangements to be remote. 7. Indemnification The Sponsor will not be liable to the Trust, the Trustee or any Shareholder for any action taken or for refraining from taking any action in good faith, or for errors in judgment or for depreciation or loss incurred by reason of the sale of any bitcoin or other assets of the Trust. However, the preceding liability exclusion will not protect the Sponsor against any liability resulting from its own gross negligence, bad faith, or willful misconduct. The Sponsor and each of its shareholders, members, directors, officers, employees, affiliates, and subsidiaries will be indemnified by the Trust and held harmless against any losses, liabilities or expenses incurred in the performance of its duties under the Declaration of Trust without gross negligence, bad faith, or willful misconduct. The Sponsor may rely in good faith on any paper, order, notice, list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft, or any other document of any kind prima facie properly executed and submitted to it by the Trustee, the Trustee’s counsel or by any other person for any matters arising under the Declaration of Trust. The Sponsor shall in no event be deemed to have assumed or incurred any liability, duty, or obligation to any Shareholder or to the Trustee other than as expressly provided for in the Declaration of Trust. Such indemnity includes payment from the Trust of the costs and expenses incurred in defending against any indemnified claim or liability under the Declaration of Trust. The Trustee will not be liable or accountable to the Trust or any other person or under any agreement to which the Trust or any series of the Trust is a party, except for the Trustee’s breach of its obligations pursuant to the Declaration of Trust or its own willful misconduct, bad faith or gross negligence. The Trustee and each of the Trustee’s officers, affiliates, directors, employees, and agents will be indemnified by the Trust from and against any losses, claims, taxes, damages, reasonable expenses, and liabilities incurred with respect to the creation, operation or termination of the Trust, the execution, delivery or performance of the Declaration of Trust or the transactions contemplated thereby; provided that the indemnified party acted without willful misconduct, bad faith or gross negligence. 8. Subsequent Events The Trust has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued and has determined that there are no material events that would require disclosure in the financial statements, other than noted below. The Trust began operations and its shares started trading on the Cboe BZX Exchange, Inc. on January 11, 2024. Refer to Note one for the transactions that occured subsequent to the period December 12, 2023 (initial seed creation date) through December 31, 2023. F- 9