Bitwise Hyperliquid ETF 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the Trust’s financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, the Trust’s unaudited financial statement and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The following discussion may contain forward-looking statements based on assumptions the Trust believes to be reasonable. The Trust’s actual results could differ materially from those discussed in these forward-looking statements. See “Statement Regarding Forward-Looking Statements” above. You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, the Trust and the Sponsor undertake no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Quarterly Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Quarterly Report. Trust Overview The Trust is an exchange-traded product that issues common shares of beneficial interest (“Shares”) that are listed on NYSE Arca, Inc. (the “Exchange”) under the ticker symbol “BHYP.” The Trust’s primary investment objective is to seek to provide exposure to the value of Hyperliquid held by the Trust, less the expenses of the Trust’s operations and other liabilities. The Trust’s secondary investment objective is to seek to derive additional Hyperliquid through staking. In seeking to achieve its primary investment objective, the Trust will hold Hyperliquid and establish its net asset value (“NAV”) by reference to the CME CF Hyperliquid–Dollar Reference Rate - New York Variant (the “Pricing Benchmark”). The Trust is sponsored and managed by Bitwise Investment Advisers, LLC (the “Sponsor”). The net assets of the Trust and its Shares are valued on a daily basis with reference to the Pricing Benchmark, a standardized reference rate published by CF Benchmarks Ltd. (the “Benchmark Provider”) that is designed to reflect the performance of Hyperliquid in U.S. dollars. The Pricing Benchmark is calculated by the Benchmark Provider based on an aggregation of executed trade flow of major Hyperliquid trading platforms (“Constituent Platforms”). The Pricing Benchmark is calculated as of 4:00 p.m. Eastern time (“ET”). Anchorage Digital Bank N.A. (“Anchorage Custody” or the “Hyperliquid Custodian”) serves as the custodian for the Trust’s Hyperliquid holdings and is responsible for the secure safekeeping of the Trust’s Hyperliquid pursuant to a custody agreement (the “Hyperliquid Custody Agreement”). Anchorage Custody was appointed by the Sponsor and is tasked with establishing and maintaining segregated accounts to hold the Trust’s Hyperliquid (the “Trust Hyperliquid Accounts”). The Hyperliquid Custodian is a national trust bank regulated by the Office of the Comptroller of the Currency that provides custody services for digital assets. The Hyperliquid Custodian is not insured by the Federal Deposit Insurance Corporation (the “FDIC”) but carries insurance provided by private insurance carriers. One or more of the Trust Hyperliquid Accounts, designated as the “Trust Staking Account(s),” permits the Hyperliquid held therein to be staked pursuant to the Trust’s secondary investment objective. In consideration for permitting its Hyperliquid to be held in the Trust Staking Account(s), the Trust will receive a portion of the additional Hyperliquid earned through the staking. The Sponsor will select one or more trusted staking agents (the “Staking Agents”). Such Staking Agents operate the validators to which the Trust’s Hyperliquid has been delegated for staking. Hyperliquid is a digital asset. Like all digital assets, buying, holding and selling Hyperliquid is very different from buying, holding and selling more conventional investments like stocks and bonds. Stocks represent ownership in a company, entitling shareholders to a portion of the company’s profits. Bonds are debt instruments issued by corporations or governments, where the bondholder is a creditor to the issuer that is generally entitled to a stream of income payments. Ownership of stocks and bonds is typically recorded through a centralized system managed by brokers, custodians or clearinghouses. Ownership of Hyperliquid does not entitle its holders to any portion of a company’s profits or any stream of income payments. Hyperliquid is a decentralized digital asset and ownership of it is reflected on a decentralized ledger. The Trust provides investors with the opportunity to access the market for Hyperliquid through a traditional brokerage account without the potential barriers to entry or risks involved with acquiring and holding Hyperliquid directly. The Trust will not use derivatives that could subject the Trust to additional counterparty and credit risks. The Sponsor believes that the design of the Trust will enable certain investors to more effectively and efficiently implement strategic and tactical asset allocation strategies that use Hyperliquid by investing in the Shares rather than purchasing, holding and trading Hyperliquid directly. 14 Results of Operations^ For the period from May 14, 2026 (commencement of operations) through June 30, 2026* For the period May 14, 2026 (commencement of operations) through June 30, 2026* (unaudited) Net investment loss $ 98 Net realized and unrealized gain (loss) $ 9,008 Net increase (decrease) in net assets resulting from operations $ 9,106 Net Assets 1 $ 128,241 1. Net assets in the above table are calculated in accordance with U.S. GAAP based on the principal market price for Hyperliquid that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date. During the period May 14, 2026 (commencement of operations) through June 30, 2026, the Trust's net assets increased from $200 on May 14, 2026 (commencement of operations) to $128,241 on June 30, 2026. The increase in the Trust's net assets resulted primarily from additions of approximately 2,052,610 Hyperliquid with a value of $124,872 in connection with Share creations, and approximately 1,830 Hyperliquid received from staking rewards, with a value of $118 during the period. Additions were partially offset by dispositions to the Trust of approximately (95,374) Hyperliquid in connection with Share redemptions, with a value of $(5,738) during the period. Net investment income for the period May 14, 2026 (commencement of operations) through June 30, 2026 was $98, which included income from Staking Rewards of $156 and net expenses of $58. Total expenses for the period May 14, 2026 (commencement of operations) through June 30, 2026 were $76, which included $37 in Sponsor Fee and $39 in Staking Fees. For the one-month period commencing on May 15, 2026, the day the Shares were initially listed on the Exchange, the Sponsor waived the entire Sponsor Fee on the first $500 million of Trust assets through June 14, 2026. In addition, for the same period, the Sponsor reimbursed the Trust for all Staking Expenses incurred on the first $1 billion of Trust assets through June 14, 2026. For the period from May 15, 2026 through June 14, 2026, the Trust waived $18 in Sponsor Fee. Net realized and change in unrealized gain on investment in Hyperliquid for the period May 14, 2026 (commencement of operations) through June 30, 2026 was $9,008, which included a realized loss of $(1,055) on the sale of Hyperliquid to meet redemptions, a realized gain of $12 from the transfer of Hyperliquid for staking activities, and a change in unrealized appreciation on investment in Hyperliquid of $10,051. Net realized and change in unrealized gain on investment in Hyperliquid for the period resulted primarily from Hyperliquid price appreciation from $44.54 on May 14, 2026 (commencement of operations) to $65.10 on June 30, 2026. Net increase in net assets resulting from operations for the period May 14, 2026 (commencement of operations) through June 30, 2026 was $9,106, which consisted of the net realized and unrealized gain on investment in Hyperliquid and net investment income of $98. * No comparative period presented as the Trust commenced operations May 14, 2026. ^ Amounts displayed are in the ‘000s, except for per-Share/coin references. Net Assets As of June 30, 2026*, the Trust held a net closing balance of 1,959,065.2803 Hyperliquid with a total market value of $127,529,273 based on the HYPEUSD_NY Price of $65.10 used to determine the Trust's NAV. The total market value of the Trust's Hyperliquid held was $128,260,004 based on the price of Hyperliquid (Lukka Prime Rate) in the principal market (Coinbase) of $65.47, used to determine the Trust's Principal Market NAV. 15 Liquidity and Capital Resources The Trust agreed to pay the unitary Sponsor Fee of 0.34% per annum of the Trust’s Hyperliquid holdings. For a 1-month period commencing on the day the Shares are initially listed on the Exchange, the Sponsor has agreed to waive the entire Sponsor Fee on the first $500 million of Trust assets. As a result, the only ordinary expense of the Trust is expected to be the Sponsor Fee. In exchange for the Sponsor Fee, the Sponsor has agreed to assume and pay the normal operating expenses of the Trust, which include the Trustee’s monthly fee and out-of-pocket expenses, the fees of the Trust’s regular service providers (Cash Custodian, Hyperliquid Custodian, Prime Execution Agent, Marketing Agent, Transfer Agent and Administrator), exchange listing fees, tax reporting fees, SEC registration fees, printing and mailing costs, audit fees and up to $500,000 per annum in ordinary legal fees and expenses. The Sponsor may determine in its sole discretion to assume legal fees and expenses of the Trust in excess of $500,000 per annum. The Sponsor will also pay the costs of the Trust’s organization. The Trust may incur certain extraordinary, non-recurring expenses that are not assumed by the Sponsor, including, but not limited to, taxes and governmental charges, any applicable brokerage commissions, financing fees, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the Shareholders (including, for example, in connection with any fork of the Hyperliquid Network, any Incidental Rights (as defined below) and any IR Asset (as defined below)), any indemnification of the Cash Custodian, Hyperliquid Custodian, Prime Execution Agent, Transfer Agent, Administrator or other agents, service providers or counterparties of the Trust, and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters. The Trust does not hold a cash balance except in connection with the creation and redemption of Baskets (blocks of 10,000 Shares) or to pay expenses not assumed by the Sponsor. To pay for expenses not assumed by the Sponsor that are denominated in U.S. dollars, the Sponsor, on behalf of the Trust, may sell the Trust’s Hyperliquid as necessary to pay such expenses. The cash proceeds of the sale will be sent to the Sponsor, which will use such proceeds to pay the expenses. Any remaining cash will be distributed back to the Cash Custodian. The Sponsor expects that the Trust will have an immaterial amount of cash flow from its operations and that its cash balance will be insignificant at the end of each reporting period. The Trust’s only sources of cash are proceeds from the sale of Baskets and Hyperliquid. The Trust will not borrow to meet liquidity needs. On May 14, 2026 (commencement of operations), the Trust began staking its Hyperliquid pursuant to staking arrangements with the Staking Agent and earns Staking Rewards in the form of additional Hyperliquid. The amount of Staking Rewards received by the Trust is influenced by factors including Hyperliquid Network conditions, protocol-level reward rates, the amount of Hyperliquid held by the Trust and the portion of the Trust’s Hyperliquid that is staked, and the Trust does not expect Staking Rewards to be earned at a consistent rate. Staking also introduces operational and liquidity considerations, including that staked Hyperliquid may be inaccessible for a period of time required to un-stake and withdraw Hyperliquid under Hyperliquid Network protocols and the Trust’s dependence on its Staking Agent for the execution of staking activities. Pursuant to the Trust’s staking arrangements and the Trust Agreement, a portion of gross Staking Rewards is allocated among the Staking Agent and the Sponsor (the Sponsor’s “Staking Fee”), with the remainder retained by the Trust. Staking Rewards retained by the Trust increases the Trust’s Hyperliquid holdings, while distributions or sales of Hyperliquid reduce the Trust’s Hyperliquid holdings. The Trust may distribute Staking Rewards (in Hyperliquid or cash from the sale of Hyperliquid) to shareholders at the Sponsor’s discretion and subject to the Trust Agreement. Under normal circumstances, the Sponsor anticipates that it will engage in staking with respect to a portion of the Trust’s Hyperliquid, except for Hyperliquid held in the Liquidity Reserve and pursuant to other short-term and temporary exigencies. Under current Hyperliquid Network protocols, Hyperliquid staked on the Hyperliquid Network is subject to a one-day lockup during which it cannot be unstaked. Additionally, after the one-day lockup period, any unstaked Hyperliquid enters a seven-day unstaking queue before it becomes freely transferable. Accordingly, the Trust intends to maintain a Liquidity Reserve composed of an amount of unstaked Hyperliquid that is freely transferable that will be used to satisfy Redemption Orders. However, there may be circumstances pursuant to which an insufficient amount of Hyperliquid comprising the Liquidity Reserve, impairing the Trust’s ability to satisfy Redemption Order(s) that it receives on a given day. This means that the Trust will not be able to make redemption distributions on the business day following a properly submitted and accepted Redemption Order, without taking additional action. This risk is especially heightened during periods of heightened market volatility. A circumstance where the Trust was unable to satisfy Redemption Orders could have significant negative consequences for the Trust. Disruptions to the Trust’s creation and redemption mechanism could widen the bid-ask spreads for the Shares or cause Shares to trade at an increased premium or discount to NAV. Although the Sponsor monitors and manages liquidity risk pursuant to the Liquidity Policies, there remains a possibility that Redemption Orders could exceed the unstaked Hyperliquid available for immediate withdrawal. In such cases, the Sponsor may delay settlement of 16 a Redemption Order (i.e., long settle the Redemption Order) or temporarily suspend the right of redemption entirely. Monitoring and risk management procedures, while designed to mitigate such risks, cannot eliminate them entirely, particularly in the event of extreme or unforeseen market conditions, sudden spikes in Redemption Orders, or operational disruptions. There is no assurance that the Sponsor’s Liquidity Policies will prove successful and that there may be times when the Trust may delay settlement of a Redemption Order or temporarily suspend the right of redemption entirely. While pursuant to the terms of the Authorized Participant Agreements the Trust may have the ability to defer settlement for a certain time if there are insufficient unstaked assets to meet Redemption Orders (long settlement), there can be no assurance that this will be sufficient to meet all Redemption Orders or that the Trust’s contractual long settlement right will be adequate to meet the Trust’s settlement obligation to Authorized Participants. If not, the Trust could be in default to such Authorized Participants. As a result, investors may still face delays or restrictions on redemptions if the volume of requests surpasses the Trust’s available unstaked Hyperliquid, or the Trust could face penalties, costs, damages, or other losses in connection with its settlement obligations to Authorized Participants, which could adversely affect the value or liquidity of, or cause losses in connection with an investment in the Shares. If Authorized Participants are unable to reliably redeem Baskets within the expected timeframe, they may decline to provide such services to the Trust, which would cause additional increases in bid-ask spreads and larger premiums and discounts. Furthermore, the Sponsor and the Trust’s service providers could face reputational and regulatory scrutiny which could ultimately have a negative impact on the Trust. Investors seeking an investment that is not subject to heightened liquidity risk should not purchase Shares. In the event that on a given day the amount of Hyperliquid comprising the Liquidity Reserve is insufficient to meet Redemption Orders received by the Trust, pursuant to the Liquidity Policies, the Trust may utilize a Contingent Liquidity Arrangement. Under such an arrangement, the Trust may enter into a credit facility that allows the Trust to borrow cash or Hyperliquid to meet its current obligations. If the Trust draws cash or Hyperliquid under any such credit facility, the Trust may incur additional expenses in the form of interest on its indebtedness or other costs of borrowing. In addition, the Sponsor, on behalf of the Trust, may seek to engage in a transaction with a third-party pursuant to which the Trust will exchange staked Hyperliquid (that will be freely transferable upon completion of the unstake period) (“Moderately Liquid Hyperliquid”) for Hyperliquid that is unstaked and freely transferable (“Highly Liquid Hyperliquid”). The Highly Liquid Hyperliquid that the Trust receives in this transaction will be used to satisfy the applicable Redemption Orders. The amount of Hyperliquid sold by the Trust under such circumstances will be the minimum necessary to satisfy the applicable Redemption Orders. Such trades are expected to occur at a spread, requiring the Trust to deliver a greater quantity of Moderately Liquid Hyperliquid in order to receive an equivalent amount of Highly Liquid Hyperliquid. 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. Off-Balance Sheet Arrangements and Contractual Obligations As of June 30, 2026, the Trust has not used, nor does it expect to use in the future, special purpose entities to facilitate off-balance sheet financing arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services which are in the best interests of the Trust. While the Trust’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Trust’s financial position. Sponsor Fee payments made to the Sponsor are calculated at an annual rate of 0.34% of the Trust's Hyperliquid holdings. As such, the Sponsor cannot anticipate the payment amounts that will be required under these arrangements for future periods since the Trust's holdings of Hyperliquid will vary in the normal course of business operations. No material changes have occurred during the period from May 14, 2026 (commencement of operations) through June 30, 2026. Critical Accounting Policies The financial statements and accompanying notes are prepared in accordance with U.S. 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, investment valuation and investment company considerations. 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 17 Cash represents cash deposits held at financial institutions and Digital 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. Staked Hyperliquid and Staking Rewards Hyperliquid held by the Trust will be bonded through Attestant, Ltd., an affiliate of the Sponsor (the "Staking Agent"), to the Hyperliquid Network ("staked") for purposes of validating a node or multiple nodes on the network. Hyperliquid staked to the Hyperliquid Network receives rewards in the form of Hyperliquid ("Staking Rewards"). Staking Rewards are variable and will accrue to the benefit of the Trust, net of delegator fees. Hyperliquid Staking Rewards are measured at fair value on the date they are accrued. Under current Hyperliquid Network protocols, Hyperliquid staked on the Hyperliquid Network is subject to a one-day lockup during which it cannot be unstaked. Additionally, after the one-day lockup period, any unstaked Hyperliquid enters a seven-day unstaking queue before it becomes freely transferable. Under normal circumstances, the Sponsor anticipates that it will engage in staking with respect to a portion of the Trust’s Hyperliquid, except for Hyperliquid held in the “Liquidity Reserve,” which is the portion of the Trust’s Hyperliquid holdings that are unstaked and are freely transferable and available to meet redemptions. Because the Trust anticipates staking a substantial portion of its Hyperliquid holdings, the Trust has adopted liquidity risk policies and procedures to monitor and manage the Liquidity Reserve. These policies and procedures are reasonably designed to ensure that the Trust is able to satisfy redemptions without incurring the risk of significant dilution of the remaining Shareholders’ interest in the Trust. Staking Rewards are earned by the Trust in Hyperliquid, which is a non-cash consideration, as the validator with whom the Trust has staked its Hyperliquid validates transactions on the Hyperliquid Network. The Trust has concluded that the validator is the principal to the validation activities giving rise to the Staking Rewards and, therefore, the Trust recognizes only the net amount (i.e., net of the Staking Rewards retained by the validator) of Hyperliquid to which it is entitled for staking its Hyperliquid with the validator. Investment Valuation - Principal Market Net Asset Value ("NAV") To determine which market is the Trust's principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust's net asset value in accordance with U.S. GAAP ("Principal Market NAV" and "Principal Market NAV per Share"), the Trust follows ASC Topic 820-10, Fair Value Measurement, which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for Hyperliquid in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that Hyperliquid is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust only receives Hyperliquid in connection with a creation order from the Authorized Participant (or a Liquidity Provider) and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to market-based volume and level of activity for Digital Asset Markets. The Authorized Participant(s), or a Liquidity Provider, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets (“Trading Platform Markets”), each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). In determining which of the eligible Digital Asset Markets is the Trust's principal market, the Trust reviews these criteria in the following order: First, the Trust reviews a list of Digital Asset Markets that are U.S. accessible, have historically provided publicly available data, and are exchanges that Bitwise normally transacts on. Specifically, the Trust utilizes a third-party valuation vendor, Lukka, Inc., to identify publicly available, well established and reputable crypto asset exchanges selected in their sole discretion. Second, Lukka, Inc. sorts these Digital Asset Markets from high to low by market-based volume and level of activity of Hyperliquid traded on each Digital Asset Market. For the period from May 14, 2026 (commencement of operations) through June 30, 2026, this sort was performed for Digital Asset Markets for the period mid-May through mid-June 2026. Third, Lukka, Inc. then reviews pricing fluctuations and the degree of variances in price on each Digital Asset Market during the 60 minutes prior to 4:00 pm. EST for Hyperliquid to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. 18 Fourth, Lukka, Inc. then selects a Digital Asset Market as its principal market based on the highest market-based volume level of activity and price stability in comparison to the other Digital Asset Markets on the list. As of June 30, 2026, Lukka, Inc. included Binance, Bitfinex, Bitflyer, Bitstamp, Bullish, Bybit, Coinbase, Crypto.com, Gate.io, Gemini, HitBTC, Huobi, itBit, Kraken, KuCoin, LMAX, MEXC Global, OKX and Poloniex as its primary Exchange Markets in consideration. At June 30, 2026, the principal market and the principal market price for Hyperliquid, which is composed of the majority of the Trust’s assets as of June 30, 2026, was Coinbase with a price of $65.47. The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market’s trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market's price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust's determination of its principal market. The cost basis of the Hyperliquid received by the Trust in connection with a creation order is recorded by the Trust at the fair value of Hyperliquid at 4:00 p.m., New York time, on the creation date for financial reporting purposes. 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 Company Considerations The Trust is an investment company for U.S. GAAP purposes and follows accounting and reporting guidance in accordance with the FASB ASC Topic 946, Financial Services - Investment Companies. The Trust uses fair value as its method of accounting for Hyperliquid in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company under the Investment Company Act of 1940. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material. Please refer to Note 2 to the financial statements included in this Quarterly Report for further discussion of the Trust’s Significant Accounting Policies. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, the Trust is not required to provide the information required by this item.