CoinShares Bitcoin ETF 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 29 Statement of Financial Condition at December 31, 2023 30 Statement of Operations for the period December 21, 2023 through December 31, 2023 31 Statement of Changes in Net Assets for the period December 21, 2023 through December 31, 2023 32 Statement of Cash Flows for the period December 21, 2023 through December 31, 2023 33 Notes to Consolidated Financial Statements 34 28 REPORT OF INDEPENDENT AUDITORS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Sponsor of Valkyrie Bitcoin Fund Opinion on the Financial Statements We have audited the accompanying statement of financial condition of Valkyrie Bitcoin Fund (the “Trust”) as of December 31, 2023, and the related statements of operations, changes in net assets and cash flows, including the related notes, for the period December 21, 2023 (date of seed audit) 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 operations, changes in its net assets and its cash flows for the period December 21, 2023 (date of seed audit) 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 include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. 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 27, 2024 925 29 Valkyrie Bitcoin Fund Statement of Financial Condition At December 31, 2023 December 31, 2023 Assets Cash $ 0 Total assets $ 0 Liabilities Commitments and contingent liabilities (Note 7) $ 0 Total liabilities 0 Net assets $ 0 Shares issued and outstanding, no par value, Unlimited shares authorized 0 Net asset value per Share $ 0 The accompanying notes are an integral part of the financial statements. 30 Valkyrie Bitcoin Fund Statement of Operations For the Period December 21, 2023 (date of seed audit) through December 31, 2023 Period Ended December 31, 2023 Expenses Sponsor’s fee $ 0 Total expenses 0 Net investment income (loss) 0 Net realized and change in unrealized gain (loss) on investment 0 Net realized gain (loss) from investment 0 Net change in unrealized gain (loss) on investment 0 Net realized and change in unrealized gain (loss) on investment 0 Net income (loss) $ 0 Net income (loss) per share $ 0 Weighted average number of shares outstanding 0 The accompanying notes are an integral part of the financial statements. 31 Valkyrie Bitcoin Fund Statement of Changes in Net Assets For the Period December 21, 2023 (date of seed audit) through December 31, 2023 Period Ended December 31, 2023 Net Assets at December 21, 2023 (date of seed audit) $ 0 Creations 0 Redemptions 0 Net investment income (loss) 0 Net realized gain (loss) from investments 0 Net change in unrealized gain (loss) on investments 0 Net Assets at December 31, 2023 $ 0 The accompanying notes are an integral part of the financial statements. 32 Valkyrie Bitcoin Fund Statement of Cash Flows For the Period December 21, 2023 (date of seed audit) through December 31, 2023 Period Ended December 31, 2023 Net cash provided by operating activities: Cash expenses paid $ 0 Increase (Decrease) in cash resulting from operations 0 Cash and cash equivalents at beginning of period 0 Cash and cash equivalents at end of period $ 0 Reconciliation of net income (loss) to net cash provided by operating activities Net income (loss) $ 0 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Net realized (gain) loss from investments 0 Net change in unrealized (gain) loss on investments 0 Net cash provided by operating activities $ 0 The accompanying notes are an integral part of the financial statements. 33 Notes to the Financial Statements December 31, 2023 1. Organization The Valkyrie Bitcoin Fund (the “Trust”) was organized as a Delaware statutory trust on January 20, 2021. The Trust has not commenced operations as of December 31, 2023. The Trust has not commenced investment activities nor issued shares. There were no receipts or disbursements of cash since the Trust’s formation. The Trust did not receive any revenue, capital gains or losses, or incur any expenses during this time period and therefore, does not have any performance history. The trustee is Delaware Trust Company (the “Trustee”). The Trust’s sponsor is Valkyrie Digital Assets LLC, a Delaware limited liability company (the “Sponsor”), which is responsible for the day-to-day administration of the Trust. The Trust is governed by the provisions of the Trust agreement (the “Trust Agreement”) executed by the Sponsor and the Trustee. The Valkyrie Bitcoin Fund is an exchange-traded fund that issues common shares of beneficial interest (“Shares”) representing units of fractional undivided beneficial interests in its net assets. There are an unlimited number of authorized shares. The investment objective of the Trust is for the Shares to reflect the performance of the value of a bitcoin as represented by the CME CF Bitcoin Reference Rate- New York Variant (the “Index”), less the Trust’s liabilities and expenses. In seeking to achieve its investment objective, the Trust will hold bitcoin and will value its Shares daily based on the value of bitcoin as reflected by the Index, which is an independently calculated value based on an aggregation of executed trade flow of major bitcoin spot exchanges. The offering of the Trust’s Shares is registered with the Securities and Exchange Commission (“SEC”) in accordance with the Securities Act of 1933. 2. Basis of Presentation and Summary of Significant Accounting Policies 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 Accounting Standards Codification 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 is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The Trust will cease to be an “emerging growth company” upon the earliest of (i) it having $1.235 billion or more in annual revenues, (ii) at least $700 million in market value of Shares being held by non-affiliates, (iii) it issuing more than $1.0 billion of non-convertible debt over a three-year period or (iv) the last day of the fiscal year following the fifth anniversary of its initial public offering. For as long as the Trust is an emerging growth company, unlike other public companies, it will not be required to provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; or comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of financial statements. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). (a) Use of Estimates The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. (b) Investment Transactions The Trust intends to purchase bitcoin upon the creation of Shares and sell bitcoin upon the redemption of Shares. Transactions will be recorded on a trade-date basis. Realized gains (losses) and changes in unrealized gains (losses) on open positions will be determined on a specific identification basis and will be recognized in the statement of operations in the period in which the sale occurred or the changes in unrealized occurred. 34 (c) Indemnifications The Sponsor and its affiliates (“Covered Person”) will be indemnified by the Trust and held harmless against any loss, judgment, liability, expense incurred or amount paid in settlement of any claim sustained by it in connection with the Covered Person’s activities for the Trust, without fraud, gross negligence, bad faith, willful misconduct or a material breach of the Trust Agreement on the part of such indemnified party arising out of or in connection with the performance of its obligations under the Trust Agreement and under each other agreement entered into by the Sponsor in furtherance of the administration of the Trust (including, without limiting the scope of the foregoing, any Participant Agreement) or any actions taken in accordance with the provisions of the Trust Agreement. The Trustee and any of the officers, directors, employees and agents of the Trustee shall be indemnified by the Trust as primary obligor and held harmless against any loss, damage, liability, claim, action, suit, cost, expense, disbursement (including the reasonable fees and expenses of counsel), tax or penalty of any kind and nature whatsoever, arising out of, imposed upon or asserted at any time against such indemnified person in connection with the performance of its obligations under the Trust Agreement, the creation, operation or termination of the Trust or the transactions contemplated therein; provided, however, that neither the Trust nor the Sponsor shall be required to indemnify any such indemnified person for any such expenses which are a result of the willful misconduct, bad faith or gross negligence of such indemnified person. The Trust’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Trust, which cannot be predicted with any certainty. (d) Federal Income Taxes The Sponsor intends to take the position that the Trust will be treated as a grantor trust under the Internal Revenue Code of 1986, as amended. If so qualified, the Trust will not be subject to U.S. federal income tax to the extent it distributes substantially all of its investment income and capital gains to shareholders. Therefore, no federal income tax provision is required. Rather, a pro rata portion of the Trust’s income, gain, losses and deductions will “flow through” to each beneficial owner of Shares. 3. Investment Valuation and Calculation of Net Asset Value (“NAV”) 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. Fair Valuation Measurement: FASB established a framework for measuring fair value in accordance with GAAP. Under FASB ASC Topic 820, Fair Value Measurement, various inputs are used in determining the value of investments. The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. The three levels of inputs of the fair value hierarchy are defined as follows: Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar securities, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available; representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability and would be based on the best information available. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The Trust intends to fair value investments for financial statement purposes, categorizing those investments using the hierarchy as described above. 35 The fair value of bitcoin held by the Trust is determined based on a GAAP-consistent pricing source. The Trust’s NAV is calculated by subtracting all accrued fees, expenses and other liabilities from the fair value of its bitcoin and other assets. The Trust’s NAV per share is calculated by taking the Trust’s NAV divided by the total amount of Shares outstanding. 4. Trust Expenses and Organization Costs The Trust will pay to the Sponsor a Sponsor’s fee in accordance with the Trust agreement. The Sponsor’s fee shall be included in the Trust agreement prior to the commencement of trading of Shares on the Nasdaq Stock exchange. The Sponsor’s fee will accrue daily by applying an annual rate to the Trust’s bitcoin holdings. As of January 11, 2024, the Sponsor’s fee annual rate is 0.25 % . The Sponsor’s fee will be payable in bitcoins at such times as determined in the Sponsor’s sole discretion. The Trust is not responsible for paying any fees or costs associated with the transfer of bitcoin to the Sponsor or the sale of bitcoin for costs not included in the Sponsor fee. The Sponsor is obligated to assume and pay the following fees and expenses of the Trust: the Marketing fee, the Administrator fee, the Custodian fee, the Cash Custodian fee, the Transfer Agent fee, the Trustee fee, applicable license fees, including the licensing fees related to the Index License Agreement, fees and expenses related to trading of Shares on Nasdaq (including marketing, legal and audit fees and expenses), legal expenses, audit fees, regulatory fees, including any fees relating to the registration of the Shares with the SEC, printing and mailing costs and costs of maintaining the Trust’s website. The Sponsor will also pay the costs of the Trust’s organization. The Trust is not obligated to repay any such costs related to the Trust’s organization and offering paid by the Sponsor. U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund Services”), an indirect subsidiary of U.S. Bancorp, intends to serve as the Trust’s fund accountant, fund administrator and the transfer agent of the Trust, pursuant to certain fund accounting servicing, fund administration servicing and transfer agent servicing agreements. U.S. Bank N.A., a subsidiary of U.S. Bancorp and parent company of Fund Services, intends to serve as the Fund’s cash custodian pursuant to a custody agreement. Paralel Distributors LLC intends to serve as the Trust’s marketing agent pursuant to a marketing agent agreement. Coinbase Custody Trust Company, LLC (the “Custodian”) is the initial custodian and Coinbase, Inc., an affiliate of the Custodian, is the prime broker of the Trust. 5. Creation and Redemption of Creation Units The Trust issues Shares on an ongoing basis, but only in one or more blocks of 5,000 Shares (a “Basket”). The Trust issues Baskets of Shares to certain authorized participants on an ongoing basis and intends to redeem Shares in Baskets on an ongoing basis from Authorized Participants. Authorized participants are the only persons that may place orders to create and redeem Baskets. Authorized participants must be (1) registered broker-dealers or other securities market participants, such as banks or other financial institutions, that are not required to register as broker-dealers to engage in securities transactions as described below, and (2) Depository Trust Company participants. Authorized participants pay the transfer agent a fee for each order they place to create or redeem one or more Baskets. In addition, an authorized participant is required to reimburse the Trust or the Sponsor, as applicable, for any operational processing and brokerage costs, transfers fees, network fees, stamp taxes and part or all of the spread between the expected bid and offer side of the market related to the bitcoin being purchased or sold in connection with such order (the “Execution Charges”, and collectively with the Transfer Agent Fee, the “Transaction Fees”). The Transaction Fees may be reduced, increased or otherwise changed by the Sponsor. 6. Related Party Transactions Certain officers of the Trust are affiliated with the Sponsor and are not paid any fees by the Trust for serving in such capacities. 7. Commitments and Contingencies There are no commitments or contingencies required to be disclosed as of December 31, 2023. 36 8. Subsequent Events The Trust commenced operations on January 11, 2024 . The Sponsor has agreed to waive Sponsor fees for the initial three months of the Trust’s operations, through April 10, 2024. On March 15, 2024, the Trust entered into an agreement with CoinShares Co., a Delaware corporation, to act as Co-Sponsor of the Trust in an advisory capacity. In connection with adding CoinShares Co. as Co-Sponsor of the Trust, the Trust Agreement was amended. CoinShares Co. is a wholly owned subsidiary of CoinShares International Limited, a Jersey company. The Sponsor has evaluated all subsequent events through the issuance of the financial statements and has noted no other events requiring adjustment or additional disclosure in the financial statements. On January 10, 2024, Valkyrie Funds LLC, an affiliate of the Sponsor, purchased 40,000 Shares at a per-Share price of $ 13.00 (the “Seed Shares”) in a transaction exempt from registration under Section 4(a)(2) of the 1933 Act. Delivery of the Seed Shares was made on January 11, 2024. Total proceeds to the Trust from the sale of the Seed Shares was $ 520,000 . 37 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable.