Item 1. Financial Statements
Item
1. Financial Statements.
INDEX
TO FINANCIAL STATEMENTS
Statements
of Financial Condition at March 31, 2024 (unaudited) and December 31, 2023
Schedule
of Investment at March 31, 2024 (unaudited)
Unaudited
Statement of Operations for the three months ended March 31, 2024
Unaudited
Statement of Changes in Net Assets for the three months ended March 31, 2024
Notes
to Financial Statements
1
Valkyrie
Bitcoin Fund
Statements
of Financial Condition
March 31, 2024
(Unaudited)
December 31, 2023
Assets
Investment in bitcoin, at fair value (cost
$ 452,528,788 and
$ 0 at March 31, 2024 and December 31, 2023,
respectively)
$ 543,202,627
$ 0
Receivables:
Trust shares sold
6,018,633
0
Total assets
549,221,260
$ 0
Liabilities
Bitcoin purchased payable
$ 6,023,272
$ 0
Total liabilities
$ 6,023,272
$ 0
Net assets
$ 543,197,988
$ 0
Shares issued and outstanding, no par value, Unlimited shares authorized
27,075,000
0
Net asset value per Share
$ 20.06
$ 0
The
accompanying notes are an integral part of the financial statements.
2
Valkyrie
Bitcoin Fund
Schedule
of Investment
March 31, 2024 (a)
Bitcoin
Cost
Fair Value
% of Net Assets
(Unaudited)
Investment in bitcoin
7,676
$ 452,528,788
$ 543,202,627
100.0 %
Total investment
$ 452,528,788
$ 543,202,627
100.0 %
Other assets and liabilities, net
( 4,639 )
0.0 % (b)
Net Assets
$ 543,197,988
100.0 %
(a) No comparative
schedules of investment have been provided as the Trust did not hold bitcoin as of December 31, 2023.
(b) Represents less
than 0.05 % of net assets.
The
accompanying notes are an integral part of the financial statements.
3
Valkyrie
Bitcoin Fund
Statement
of Operations
For the Three
Months Ended
March 31, 2024 (a)
(Unadited)
Expenses
Sponsor’s fee (Note 4)
$ 114,185
Less: Sponsor fee waiver
( 114,185 )
Total expenses
0
Net investment income (loss)
0
Net realized and change in unrealized gain (loss) on investment
Net realized gain (loss) from investment
0
Net change in unrealized gain (loss) on investment
90,673,839
Net realized and change in unrealized gain (loss) on investment
90,673,839
Net income (loss)
$ 90,673,839
Net income (loss) per share
$ 7.40
Weighted average number of shares outstanding
12,253,642
(a) No comparative
statements of operations have been provided as the Trust had not to commenced operations as of December 31, 2023.
The
accompanying notes are an integral part of the financial statements.
4
Valkyrie
Bitcoin Fund
Statement
of Changes in Net Assets
For
the three months ended March 31, 2024
For the Three
Months Ended
March 31, 2024 (a)
(Unaudited)
Net Assets – Beginning of Period
$ 0
Creations
452,597,587
Redemptions
( 73,438 )
Net investment income (loss)
0
Net realized gain (loss) from investment
0
Net change in unrealized gain (loss) on investment
90,673,839
Net Assets – End of Period
$ 543,197,988
(a) No comparative
statements of changes in net assets have been provided as the Trust had not commenced operations as of December 31, 2023.
The
accompanying notes are an integral part of the financial statements.
5
Valkyrie
Bitcoin Fund
Notes
to the Unaudited Financial Statements
March
31, 2024
1. Organization
The
Valkyrie Bitcoin Fund (the “Trust”) was organized as a Delaware statutory trust on January 20, 2021. The fiscal year for
the Trust is December 31 st . 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 holds bitcoin and values 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 (“FASB”) 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 in Bitcoin
The
Trust purchases bitcoin upon the net creation of Shares and sells bitcoin upon the net redemption of Shares. Transactions are recorded
on a trade-date basis. Realized gains (losses) and changes in unrealized gains (losses) on open positions are determined on a specific
identification basis and are recognized in the statement of operations in the period in which the sale occurred or the changes in unrealized
occurred.
The Trust utilizes an exchange traded price from the principal market for bitcoin as of 4:00 p.m. ET on the Trust’s financial statement
measurement date to value the bitcoin held by the Trust. The Sponsor determines in its sole discretion the valuation sources and policies
used to prepare the Trust’s financial statements in accordance with U.S. GAAP. The Trust engages a third party vendor to obtain
a price from a principal market for bitcoin, which is determined and designated by such third party vendor daily based on its consideration
of several exchange characteristics, including the volume and frequency of trades.
6
(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
Trust’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.
The
following table presents information about the Trust’s assets and liabilities measured at fair value as of March 31, 2024:
Level 1
Level 2
Level 3
Total
Bitcoin
$ 543,202,627
—
—
$ 543,202,627
Total Investments
$ 543,202,627
—
—
$ 543,202,627
There were no transfers between Level 1 and other Levels for the three months ended March 31, 2024. The Trust held no
bitcoin as of December 31, 2023
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.
7
The
Trust fair values investments for financial statement purposes, categorizing those investments using the hierarchy as described above.
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
The
Trust pays to the Sponsor a Sponsor’s fee in accordance with the Trust agreement. The Sponsor’s fee accrues daily by applying
an annual rate of 0.25 % to the Trust’s bitcoin holdings. 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.
U.S.
Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“Fund Services”), an indirect subsidiary of
U.S. Bancorp, serves 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, serves as the Trust’s cash custodian pursuant to a custody agreement.
Paralel
Distributors LLC serves as the Trust’s marketing agent pursuant to a marketing agent agreement.
Coinbase
Custody Trust Company, LLC and BitGo Trust Company, Inc. (the “Custodians”)
are custodians 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 redeems 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.
Activity in the number and value of Shares created and redeemed for the three months ended March 31, 2024 are as follows:
Number of Shares
Value of Shares
Creations
27,080,000
$ 452,597,587
Redemptions
( 5,000 )
$ ( 73,438 )
Net change in Shares created and redeemed
27,075,000
$ 452,524,149
8
6. Investment Transactions
For the three months ended March 31, 2024, the
cost of purchases and proceeds from sales of bitcoin by the Trust, were as follows:
Purchases
Sales
$ 452,528,788
$ 0
7. 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.
The Sponsor agreed to waive Sponsor fees for the
initial three months of the Trust’s operations, through April 10, 2024. For the three months ended March 31, 2024, the Trust incurred
$ 114,185 in Sponsor fees, of which, $ 114,185 was waived by the Sponsor.
On January 10, 2024, Valkyrie Funds LLC, an affiliate
of the Sponsor, purchased 40,000 Shares at a per-Share price of $ 13.00 . Delivery of these Shares was made on January 11,
2024. Total proceeds to the Trust from the sale of these Shares was $ 520,000 .
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.
Effective
June 14, 2024 (the “Effective Date”), Valkyrie Digital Assets LLC shall withdraw as Sponsor to the Trust. Pursuant to Section
6.9 of the Trust Agreement, on the Effective Date of the Sponsor’s withdrawal as Sponsor to the Trust, CoinShares Co. shall automatically
and without further action by the Sponsor, Trustee or the Shareholders (as defined in the Trust Agreement) become the successor Sponsor
and shall have all the powers, rights, duties and obligations of the Sponsor under the Trust Agreement.
8. Commitments and Contingencies
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.
9. Financial Highlights
The Trust is presenting the following financial
highlights related to investment performance and operations of a Share outstanding for the period from January 10, 2024 (the initial share
purchase date) through March 31, 2024. The total return at NAV is based on the change in NAV of a Share during the period and the total
return at market value is based on the change in market value of a Share on the Nasdaq Stock Market, LLC during the period. An individual
investor’s return and ratios may vary based on the timing of capital transactions.
Fiancial Highlights (Unaudited)
For the period January 10, 2024 through March
31, 2024
Period Ended
March 31, 2024
Net Asset Value
Net Asset Value per Share, beginning of period
$ 13.00
Net investment income (loss)
0
Net realized and change in unrealized Gain (loss)
7.06
Net income (loss)
7.06
Net asset value per Share, end of period
$ 20.06
Market Value per Share, beginning of period
$ 13.00
Market Value per Share, end of period
$ 20.13
Ratio to average net assets
Net investment income (loss) (1)
0.00 %
Gross expenses (1)
0.25 %
Net expenses (1) (3)
0.00 %
Total return, at net asset value (2)
54.31 %
Total return, at market value (2)
54.85 %
(1) Annualized
(2) Not annualized
(3) Includes voluntary reimbursement of sponsor fees of 0.25 %
9
10. Subsequent Events
The Sponsor has evaluated all subsequent events
through the issuance of the financial statements and has noted no events other than those described in Note 7 requiring adjustment or
additional disclosure in the financial statements.
10
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