What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 65 added, 75 removed, 77 unchanged (65% of the section changed)

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Risk Factors” in this Quarterly Report or in “Part I, Item 1A.

Risk Factors or other sections of our Annual Report on Form 10-K for the year ended December 31, 2020.

Risk Factors” and “Forward-Looking Statements” or other sections of our Annual Report on Form 10-K

for the year ended December 31, 2021.

Trust Overview

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Principal Market and Fair Value Determination

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 NAV, the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, which outlines the application of fair value accounting.

ASC 820-10 determines fair value to be the price that would be received for Bitcoin 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 Bitcoin is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market.

which outlines the application of fair value accounting.

determines fair value to be the price that would be received for Bitcoin in a current sale, which assumes an orderly transaction between market participants on the measurement date.

requires the Trust to assume that Bitcoin 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.

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Therefore, the Trust looks to the Authorized Participant when assessing entity-specific and market-based volume and level of activity for Digital Asset Markets.

The Authorized Participant transacts in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary.

The Authorized Participant transacts in a Brokered Market, a Dealer Market, Principal-to-Principal

Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary.

The Authorized Participant, as a related party of the Sponsor, provides information about the Digital Asset Markets on which it transacts to the Trust.

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 and excludes any Digital Asset Markets that are non-accessible to the Trust and the Authorized Participant(s).

The Trust or the Authorized Participant does not have access to Digital Asset Exchanges that do not have a BitLicense and has access only to non-Digital Asset Exchange Markets that the Authorized Participant reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market.

First, the Trust reviews a list of Digital Asset Markets and excludes any Digital Asset Markets that are non-accessible

to the Trust and the Authorized Participant(s).

The Trust or the Authorized Participant does not have access to Digital Asset Exchanges that do not have a BitLicense and has access only to non-Digital

Asset Exchange Markets that the Authorized Participant reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market.

Second, the Trust sorts the remaining Digital Asset Markets from high to low by entity-specific and market-based volume and activity of Bitcoin traded on each Digital Asset Market in the trailing twelve months.

Third, the Trust then reviews intra-day pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market.

Third, the Trust then reviews intra-day

pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market.

Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market volume, activity and price stability in comparison to the other Digital Asset Markets on the list.

Based on information reasonably available to the Trust, Exchange Markets have the greatest volume and level of activity for the asset.

The Trust therefore looks to accessible Exchange Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its

principal market.

The Trust therefore looks to accessible Exchange Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal

Markets to determine its principal market.

As a result of the aforementioned analysis, an Exchange Market has been selected as the Trust’s principal market.

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Review of Financial Results (unaudited)

Financial Highlights for the Three and Nine Months Ended September 30, 2021 and 2020

Financial Highlights for the Three months ended March 31, 2022 and March 31, 2021

(All amounts in the following table and the subsequent paragraphs, except Share, per Share, Bitcoin and price of Bitcoin amounts, are in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Net realized and unrealized gain on investment in Bitcoin

Net increase in net assets resulting from operations

Net realized and unrealized gain on investment in Bitcoin for the three months ended September 30, 2021 was $5,703,333 which includes a realized gain of $100,200 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $5,603,133.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $34,764.81 per Bitcoin as of June 30, 2021 to $43,529.16 per Bitcoin as of September 30, 2021.

Net increase in net assets resulting from operations was $5,566,037 for the three months ended September 30, 2021, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $137,296.

Net assets increased to $28,209,892 at September 30, 2021, a 25% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation, partially offset by the withdrawal of approximately 3,275 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the three months ended September 30, 2020 was $582,443 which includes a realized gain of $10,694 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $571,749.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $9,134.09 per Bitcoin as of June 30, 2020 to $10,708.57 per Bitcoin as of September 30, 2020.

Net increase in net assets resulting from operations was $560,362 for the three months ended September 30, 2020, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $22,081.

Net assets increased to $4,816,619 at September 30, 2020, a 36% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 65,143 Bitcoin with a value of $723,893 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 2,075 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the nine months ended September 30, 2021 was $9,021,257 which includes a realized gain of $324,729 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $8,696,528.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $29,185.05 per Bitcoin as of December 31, 2020 to $43,529.16 per Bitcoin as of September 30, 2021.

Net increase in net assets resulting from operations was $8,588,187 for the nine months ended September 30, 2021, which consisted of the

net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $433,070 .

Net assets increased to $28,209,892 at September 30, 2021 , a 59% increase for the period .

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 50,739 Bitcoin with a value of $1,905,227 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 9,709 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the nine months ended September 30, 2020 was $1,128,266 which includes a realized gain of $24,275 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $1,103,991.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $7,145.00 per Bitcoin as of December 31, 2019 to $10,708.57 per Bitcoin as of September 30, 2020.

Net increase in net assets resulting from operations was $1,079,589 for the nine months ended September 30, 2020, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $48,677.

Net assets increased to $4,816,619 at September 30, 2020, a 158% increase for the period.

Three Months Ended March 31,

Net realized and unrealized gain (loss) on investment in Bitcoin

Net increase (decrease) in net assets resulting from operations

Net realized and unrealized loss on investment in Bitcoin for the three months ended March 31, 2022 was $(189,198) which includes a realized gain of $95,096 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of $(284,294).

Net realized and unrealized loss on investment in Bitcoin for the period was driven by Bitcoin price depreciation from $45,867.86 per Bitcoin as of December 31, 2021 to $45,595.55 per Bitcoin as of March 31, 2022.

Net decrease in net assets resulting from operations was $(320,223) for the three months ended March 31, 2022, which consisted of the net realized and unrealized loss on investment in Bitcoin, less the Sponsor’s Fee of $131,025.

Net assets decreased to $29,255,830 at March 31, 2022, a 1% decrease for the period.

The decrease in net assets resulted from the aforementioned Bitcoin price depreciation and by the withdrawal of approximately 3,172 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the three months ended March 31, 2021 was $18,882,994 which includes a realized gain of $109,934 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $18,773,060.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $29,185.05 per Bitcoin as of December 31, 2020 to $58,601.27 per Bitcoin as of March 31, 2021.

Net increase in net assets resulting from operations was $18,738,694 for the three months ended March 31, 2021, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $144,300.

Net assets increased to $38,360,399 at March 31, 2021, a 117% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 50,739 Bitcoin with a value of $1,905,227 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 3,178 Bitcoin to pay the foregoing Sponsor’s Fee.

Off-Balance Sheet Arrangements

The Trust is not a party to any off-balance sheet arrangements.

Cash Resources and Liquidity

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As a consequence, the Sponsor expects that the Trust will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period.

Furthermore, the Trust is not a party to any off-balance

sheet arrangements.

In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust.

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Selected Operating Data

Three Months Ended September 30,

Nine Months Ended September 30,

Three months ended March 31,

(All Bitcoin balances are rounded to the nearest whole Bitcoin) Bitcoins:

Opening Balance

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Closing Balance

As of September 30,

As of March 31,

Price of Bitcoin on principal market (1)

NAV per Share (2)

Index Price (3)

Digital Asset Holdings per Share (3)

The Trust performed an assessment of the principal market at September 30, 2021 and 2020, and identified the principal market as Coinbase Pro.

As of September 30, 2021 and 2020 the NAV per Share was calculated using the fair value of Bitcoin based on the price provided by Coinbase Pro, the Digital Asset Exchange that the Trust currently considers its principal market, as of 4:00 p.m., New York time, on the valuation date.

The Trust performed an assessment of the principal market at March 31, 2022 and 2021, and identified the principal market as Coinbase Pro.

As of March 31, 2022 and 2021, the NAV per Share was calculated using the fair value of Bitcoin based on the price provided by Coinbase Pro, the Digital Asset Exchange that the Trust currently considers its principal market, as of 4:00 p.m., New York time, on the valuation date.

The Trust’s Digital Asset Holdings per Share is derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date.

The Trust’s Digital Asset Holdings per Share is calculated using a non-GAAP methodology where the volume-weighted average price is derived from multiple Digital Asset Exchanges.

Business—Trust Objective and Key Operating Metrics” in the Trust’s Annual Report on Form 10-K for a description of the Trust’s Digital Asset Holdings per Share.

The Digital Asset Exchanges used to calculate the Index Price as of September 30, 2021 and 2020 were Coinbase Pro, Bitstamp, Kraken, and LMAX Digital.

The Trust’s Digital Asset Holdings per Share is calculated using a non-GAAP

methodology where the price is derived from multiple Digital Asset Exchanges.

Business—Overview of the Bitcoin Industry and Market—Bitcoin Value—The Index and the Index Price” in the Trust’s Annual Report on Form 10-K

for a description of the Trust’s Digital Asset Holdings per Share.

The Digital Asset Exchanges used to calculate the Index Price as of March 31, 2022 and 2021 were Coinbase Pro, Bitstamp, Kraken, and LMAX Digital.

For accounting purposes, the Trust reflects creations and the Bitcoins receivable with respect to such creations on the date of receipt of a notification of a creation but does not issue Shares until the requisite number of Bitcoins is received.

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Subject to receipt of regulatory approval from the SEC and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program.

On October 19, 2021, NYSE Arca, Inc.

(“NYSE Arca”) filed an application with the SEC pursuant to Rule 19b-4 under the Exchange Act to list the Shares of the Trust on NYSE Arca.

As of the date of this filing, the NYSE Arca 19b-4 application has not been approved by the SEC and the Trust has not obtained relief from the SEC under 17 CFR §§ 242.101 and 102, and the Trust makes no representation as to when or if such approval and relief will be obtained .

As of September 30, 2021, the Trust had a net closing balance with a value of $27,826,688,005, based on the Index Price (non-GAAP methodology).

As of September 30, 2021, the Trust had a total market value of $28,209,891,095, based on the principal market (Coinbase Pro).

As of September 30, 2020, the Trust had a net closing balance with a total value of $4,834,583,325, based on the Index Price (non-GAAP methodology).

As of September 30, 2020, the Trust had a total market value of $4,816,618,672, based on the principal market (Coinbase Pro).

The Trust has not sought such relief as of the date of this Quarterly Report.

As of March 31, 2022, the Trust had a net closing balance with a value of $29,275,033,757, based on the Index Price (non- GAAP methodology).

As of March 31, 2022, the Trust had a total market value of $29,255,829,536, based on the principal market (Coinbase Pro).

As of March 31, 2021, the Trust had a net closing balance with a total value of $38,354,572,883, based on the Index Price (non- GAAP methodology).

As of March 31, 2021, the Trust had a total market value of $38,360,398,824, based on the principal market (Coinbase Pro).

Historical Digital Asset Holdings and Bitcoin Prices

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Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world.

The following chart illustrates the movement in the Trust’s Digital Asset Holdings per Share (as adjusted for the Share Split for periods prior to January 26, 2018) versus the Index Price and the Trust’s NAV per Share (as adjusted for the Share Split for periods prior to January 26, 2018) from September 25, 2013 to September 30, 2021.

The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on September 25, 2013 to September 30, 2021.

Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $63,357.52, with the straight average being $8,052.83 through September 30, 2021.

The Sponsor has not observed a material difference between the Index Price and average prices from the constituent Digital Asset Exchanges individually or as a group.

End of period

Last business day

Twelve months ended September 30, 2017

Twelve months ended September 30, 2018

Twelve months ended September 30, 2019

Twelve months ended September 30, 2020

Twelve months ended September 30, 2021

September 25, 2013 (the first Creation Basket of the Trust) to September 30, 2021

The following table illustrates the movements in the Digital Asset Market price of Bitcoin, as reported on the Trust’s principal market, from the beginning of the Trust’s operations on September 25, 2013 to September 30, 2021.

The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on September 25, 2013 to March 31, 2022.

Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $67,352.59, with the straight average being $10,454.70.

The Sponsor has not observed a material difference between the Index Price and the average prices from the constituent Digital Asset Exchanges individually or as a group.

Twelve months ended March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

Twelve months ended March 31, 2022

September 25, 2013 (the first Creation Basket of the Trust) to March 31, 2022

Since the beginning of the Trust’s operations, the price of Bitcoin has ranged from $110.83 to $67,371.70, with the straight average being $10,456.25.

Digital Asset Market Price

End of period

Last business day

Twelve months ended September 30, 2017

Twelve months ended September 30, 2018

Twelve months ended September 30, 2019

Twelve months ended September 30, 2020

Twelve months ended September 30, 2021

September 25, 2013 (the first Creation Basket of the Trust) to September 30, 2021

Digital Asset

Twelve months ended March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

Twelve months ended March 31, 2022

September 25, 2013 (the first Creation Basket of the Trust) to March 31, 2022

The following chart sets out the historical closing prices for the Shares as reported by OTCQX and the Trust’s Digital Asset Holdings per Share.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis