Ark 21Shares Bitcoin ETF 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This information should be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Form 10-Q. This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and such forward-looking statements involve risks and uncertainties. All statements (other than statements of historical fact) included in this Form 10-Q that address activities, events or developments that may occur in the future, the Trust’s operations, the Sponsor’s plans and references to the Trust’s future success and other similar matters are forward-looking statements. Words such as “could,” “would,” “may,” “expect,” “intend,” “estimate,” “predict,” and variations on such words or negatives thereof, and similar expressions that reflect our current views with respect to future events and Trust performance, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties that are difficult to predict and many of which are outside of our control, and actual results could differ materially from those discussed. Forward-looking statements involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed therein. We express our estimates, expectations, beliefs, and projections in good faith and believe them to have a reasonable basis. However, we make no assurances that management’s estimates, expectations, beliefs, or projections will be achieved or accomplished. These forward-looking statements are based on assumptions about many important factors that could cause actual results to differ materially from those in the forward-looking statements. We do not intend to update any forward-looking statements even if new information becomes available or other events occur in the future, except as required by the federal securities laws. Organization and Trust Overview The Trust is a Delaware statutory trust, formed on June 22, 2021, pursuant to the DSTA. The Trust operates pursuant to the Trust Agreement. The Trust is not registered as an investment company under the 1940 Act and is not a commodity pool for purposes of the Commodity Exchange Act. The Trust is managed and controlled by 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 21co Holdings Limited. The ultimate parent company of 21co Holdings Limited is FalconX. The Sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator with respect to the Trust, or a commodity trading advisor with respect to the Trust. The Trust is an exchange-traded fund that issues common shares of beneficial interest representing fractional undivided beneficial interests in its net assets that trade on the Exchange. The Shares are listed for trading on the Exchange 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 Pricing Benchmark, adjusted for the Trust’s expenses and other liabilities. CF Benchmarks Ltd. is the Pricing Benchmark Provider. The Pricing Benchmark 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 Custodians and the Administrator values the Shares daily based on the Pricing Benchmark. The Trust is a passive investment vehicle and is not a leveraged product. The Sponsor does not actively manage the bitcoin held by the Trust. On June 30, 2026, the Sponsor provided notice to the Pricing Benchmark Provider of the termination, effective August 31, 2026, of the licensing agreement between the Sponsor and the Pricing Benchmark Provider relating to the use of the Pricing Benchmark. The Sponsor intends to enter into a licensing agreement with FTSE on or about August 24, 2026, whereby FTSE will provide each of the Sponsor, the Trust, and their affiliates a non-exclusive, non-transferable, non-sub-licensable, worldwide license to access, view and use FTSE index data to develop, create, calculate, settle, maintain or support and market the Trust. The Trust issues Shares only in Creation Baskets of 5,000 or multiples thereof. Creation Baskets are issued and redeemed in exchange for cash or bitcoin. Individual Shares will not be redeemed by the Trust but are listed and traded on the Exchange under the ticker symbol “ARKB.” The Trust issues Shares in Creation Baskets on a continuous basis at the applicable NAV per Share on the creation order date. The Trust pays the unitary Sponsor Fee of 0.21% of the Trust’s NAV (the “Sponsor Fee”). The Sponsor agreed to waive the entire Sponsor Fee for (i) a nine-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 came first. The Trust assets exceeded $1 billion in February 2024, at which time the waiver period ended. The Sponsor Fee is paid by the Trust to the Sponsor as compensation for services performed under the Trust Agreement. The Sponsor Fee accrues daily and is payable in bitcoin weekly in arrears. The Administrator calculates the Sponsor Fee on a daily basis by applying an annualized rate to the Trust’s NAV, and the amount of bitcoin payable in respect of each daily accrual is determined by reference to the Pricing Benchmark. Calculation of NAV and NAV per Share The NAV of the Trust is used by the Trust in its day-to-day operations to measure the net value of the Trust’s assets. The NAV is calculated on each Business Day and is equal to the aggregate value of the Trust’s assets less its liabilities based on the Pricing Benchmark price. In determining the NAV of the Trust on any Business Day, the Administrator calculates the price of the bitcoin held by the Trust as of 4:00 p.m. ET on such day. The Administrator also calculates the “NAV per Share” of the Trust, which equals the NAV of the Trust divided by the number of outstanding Shares. In addition to calculating NAV and NAV per Share, for purposes of the Trust’s financial statements, the Trust determines the net asset value of the Trust determined on a GAAP basis (the “Principal Market NAV”) and net asset value of the Trust per Share determined on a GAAP basis (the “Principal Market NAV per Share”) on each valuation date for such financial statements. The determination of the Principal Market NAV and Principal Market NAV per Share is identical to the calculation of NAV and NAV per Share, respectively, except that the value of bitcoin is determined using the fair value of bitcoin based on the price in the bitcoin market that the Trust considers its “principal market” as of 4:00 p.m. ET on the valuation date, rather than using the Pricing Benchmark. NAV and NAV per Share are not measures calculated in accordance with GAAP and are not intended as substitutes for Principal Market NAV and Principal Market NAV per Share, respectively. 12 Critical Accounting Estimates The financial statements and accompanying notes are prepared in accordance with GAAP. The preparation of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s application of accounting policies. Below is a summary of accounting policies on cash and investment valuation. There were no material estimates involving a significant level of estimation uncertainty that had or are reasonably likely to have had a material impact on the Trust’s financial condition used in the preparation of the financial statements. In addition, please refer to Note 2 to the Financial Statements included in this report for further discussion of the Trust’s accounting policies. 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 The Trust’s policy is to value investments held at fair value. The Trust follows the provisions of ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 provides guidance for determining fair value and requires increased disclosure regarding the inputs to valuation techniques used to measure fair value. ASC 820 determines fair value to be the price that would be received for bitcoin in a current sale, which assumes an exit price resulting from an orderly transaction between market participants on the measurement date. ASC 820-10 requires the assumption that bitcoin is sold in its principal market to market participants (or in the absence of a principal market, the most advantageous market). The Trust utilizes an exchange traded price from the Trust’s principal market for bitcoin as of 4:00 p.m. ET on the Trust’s financial statement measurement date. Results of Operations (Amounts in thousands, except price and quantity of bitcoin and Shares outstanding) As of June 30, 2026, the Trust had a net closing balance of 32,178.2280 bitcoins with a value of $1,885,818, based on the Pricing Benchmark Price of $58,605.41 on June 30, 2026 (CME CF Bitcoin Reference Rate – New York Variant, non-GAAP methodology). As of June 30, 2026, the total market value of the Trust’s bitcoin was $1,889,314, based on the price of a bitcoin in the principal market of $58,714.04 on June 30, 2026. For the Three Months Ended June 30, 2026 The Trust’s NAV decreased from $2,388,670 on March 31, 2026 to $1,889,240 on June 30, 2026, a 20.91% decrease. The decrease in the Trust’s NAV resulted primarily from a decrease in the price of bitcoin, which fell 13.37% from $67,772.92 on March 31, 2026 to $58,714.04 on June 30, 2026. The decrease in the Trust’s NAV was further amplified by a net decrease in outstanding Shares, which fell from 106,210,000 Shares on March 31, 2026 to 97,015,000 Shares on June 30, 2026, a result of 37,780,000 Shares being created and 46,975,000 Shares being redeemed during the period. Net decrease in net assets resulting from operations for the three months ended June 30, 2026 was $(274,735), consisting of a net change in unrealized depreciation on investment in bitcoin of $(87,975), a net realized loss of $(185,186) on bitcoin sold for the redemption of Shares, a net realized loss of $(287) on bitcoin sold to pay the Sponsor Fee, a net realized gain of $28 on in-kind liabilities paid, a net change in unrealized loss on the Sponsor Fee payable of $(3), and a net investment loss of $(1,312). The Sponsor Fee of $1,312 was the Trust’s only expense during the quarter. For the Three Months Ended June 30, 2025 Net realized and change in unrealized gain on investment in bitcoin for the three months ended June 30, 2025 was $1,200,104, which includes a net change in unrealized appreciation on investment in bitcoin of $859,932, a net realized gain of $339,579 on bitcoin sold for the redemption of Shares, and a net realized gain of $593 on bitcoin sold to pay the Sponsor Fee. The gain was driven by bitcoin price appreciation from $82,444.71 per bitcoin as of March 31, 2025 to $107,753.77 per bitcoin as of June 30, 2025. Net increase in net assets resulting from operations was $1,197,660 for the three months ended June 30, 2025. For the Six Months Ended June 30, 2026 The Trust’s NAV decreased from $3,305,323 on December 31, 2025 to $1,889,240 on June 30, 2026, a 42.84% decrease. The decrease in the Trust’s NAV resulted primarily from a decrease in the price of bitcoin, which fell 32.91% from $87,515.28 on December 31, 2025 to $58,714.04 on June 30, 2026. The decrease in the Trust’s NAV was further amplified by a net decrease in outstanding Shares, which fell from 113,755,000 Shares on December 31, 2025 to 97,015,000 Shares on June 30, 2026, a result of 57,760,000 Shares being created and 74,500,000 Shares being redeemed during the period. Net decrease in net assets resulting from operations for the six months ended June 30, 2026 was $(991,577), resulting from a net change in unrealized depreciation on investment in bitcoin of $(674,311), a net realized loss of $(314,085) from bitcoin sold for the redemption of Shares, a net realized loss of $(547) from bitcoin sold to pay the Sponsor Fee, a net realized gain of $118 from in-kind liabilities paid, a net change in unrealized gain on Sponsor Fee payable of $5, and a net investment loss of $(2,757). Other than the Sponsor Fee of $2,757, the Trust had no expenses during the period. 13 For the Six Months Ended June 30, 2025 The Trust’s NAV increased from $4,352,288 on December 31, 2024 to $5,034,361 on June 30, 2025. The increase in the Trust’s NAV resulted primarily from an increase in the price of bitcoin of 15.47% (from $93,320.22 per bitcoin on December 31, 2024 to $107,753.77 per bitcoin on June 30, 2025), together with a net increase of 500,000 in the number of Shares outstanding, reflecting 103,035,000 Shares created and 102,535,000 Shares redeemed during the period. The Trust’s net increase in net assets resulting from operations for the six months ended June 30, 2025 was $610,112, consisting of a net change in unrealized depreciation on investment in bitcoin of $(47,364), a net realized gain of $661,158 on bitcoin sold for the redemption of Shares, a net realized gain of $1,129 on bitcoin sold to pay the Sponsor Fee, and a net investment loss of $(4,811). The Sponsor Fee of $4,811 was the Trust’s only expense during the period. Liquidity and Capital Resources The Trust is not aware of any trends, demands, commitments, events, or uncertainties that are reasonably likely to result in material changes to its liquidity needs. The Trust’s only ordinary recurring expense is the Sponsor Fee. The Sponsor agreed to waive the entire Sponsor Fee for (i) a nine-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 came first. The Trust assets exceeded $1 billion in February 2024, at which time the waiver period ended. In exchange for the Sponsor Fee, the Sponsor has agreed to assume the ordinary fees and expenses incurred by the Trust, including but not limited to the following: fees charged by the Sub-Adviser, Administrator, the Custodians, the Transfer Agent and the Trustee, the Marketing Fee, the Exchange’s listing fees, typical maintenance and transaction fees of the Depository Trust Company (“DTC”), U.S. Securities and Exchange (“SEC”) registration fees, printing and mailing costs, website fees, tax reporting fees, audit fees, license fees and expenses, up to $100,000 per annum in ordinary legal fees and expenses. The Sponsor bears expenses in connection with the Trust’s organization and initial offering costs. The Sponsor is not required to pay any extraordinary or non-routine expenses. Extraordinary expenses are fees and expenses which are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Trust. The Trust will be responsible for the payment of such expenses to the extent any such expenses are incurred. Routine operational, administrative, and other ordinary expenses are not deemed extraordinary expenses. The Trust will sell bitcoin on an as-needed basis to pay the Sponsor Fee. Off-Balance Sheet Arrangements The Trust does not have any off-balance sheet arrangements.