What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-25 · 63 added, 89 removed, 117 unchanged (57% of the section changed)

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While an investment in the Shares is not a direct investment in Bitcoin, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to Bitcoin.

To date, the Trust has not met its investment objective and the Shares quoted on OTCQX have not reflected the value of Bitcoins held by the Trust, less the Trust’s expenses and other liabilities, but instead have traded at both premiums and discounts to such value, which at times have been substantial.

The Trust is not managed like a business corporation or an active investment vehicle.

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Includes Cede & Co.

as nominee for DTC for the Shares traded on OTCQX.

as nominee for DTC for the Shares traded on OTCQX, but not its direct participants.

Therefore, this number does not include the individual holders who have bought/sold Shares on OTCQX or transferred their eligible Shares to their brokerage accounts.

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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.

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.

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 (“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.

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 Bitcoin from the Authorized Participant and does not itself transact on any Digital Asset Markets.

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

The Trust only receives Bitcoin in connection with a creation order from the Authorized Participant (or its 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 Trust, through its Authorized Participant(s), or a Liquidity Provider on behalf of the Authorized Participant(s), may transact in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange 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 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.

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.

First, the Trust reviews a list of Digital Asset Markets that maintain practices and policies designed to comply with AML and KYC regulations, and non-Digital Asset Exchange Markets that the Trust 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 these Digital Asset Markets from high to low by market-based volume and level of activity of Bitcoin traded on each Digital Asset Market in the trailing twelve months.

Third, the Trust then reviews 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-based volume, level of 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.

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 investment in Bitcoin recorded by the Trust for financial reporting purposes is the fair value of Bitcoin at the time of transfer.

The cost basis of Bitcoin received in connection with a creation order is recorded by the Trust at the fair value of Bitcoin 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.

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Financial Highlights for the Years ended December 31, 2022, 2021 and 2020

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

Net realized and unrealized gain on investment in Bitcoin

Net increase in net assets resulting from operations

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

For the Year Ended December 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 year ended December 31, 2022 was $(18,751,107) which includes a realized gain of $216,064 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of $(18,967,171).

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 $16,556.29 per Bitcoin as of December 31, 2022.

Net decrease in net assets resulting from operations was $(19,111,790) for the year ended December 31, 2022, which consisted of the net realized and unrealized loss on investment in Bitcoin, less the Sponsor’s Fee of $360,683.

Net assets decreased to $10,464,263 at December 31, 2022, a (65)% decrease for the period.

The decrease in net assets resulted from the aforementioned Bitcoin price depreciation and by the withdrawal of approximately 12,768 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the year ended December 31, 2021 was $10,569,768 which includes a realized gain of $470,168 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $10,099,600.

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The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 353,646 Bitcoin with a value of $4,747,380 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 7,799 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the year ended December 31, 2019 was $686,551 which includes a realized gain of $23,305 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $663,246.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $3,679.42 per Bitcoin as of December 31, 2018 to $7,145.00 per Bitcoin as of December 31, 2019.

Net increase in net assets resulting from operations was $651,821 for the year ended December 31, 2019, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $34,730.

Net assets increased to $1,866,218 at December 31, 2019, a 148% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 61,556 Bitcoin with a value of $462,775 to the Trust in connection with Share creations during the year, partially offset by the withdrawal of approximately 4,641 Bitcoin to pay the foregoing Sponsor’s Fee.

Cash Resources and Liquidity

The Trust has not had a cash balance at any time since inception.

When selling Bitcoins, Incidental Rights and/or IR Virtual Currency in the Digital Asset Market to pay Additional Trust Expenses, the Sponsor endeavors to sell the exact number of Bitcoins, Incidental Rights and/or IR Virtual Currency needed to pay expenses in order to minimize the Trust’s holdings of assets other than Bitcoin.

When selling Bitcoins, Incidental Rights and/or IR Virtual Currency in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor endeavors to sell the exact number of Bitcoins, Incidental Rights and/or IR Virtual Currency needed to pay expenses in order to minimize the Trust’s holdings of assets other than Bitcoin.

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.

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Closing Balance

For the year ended December 31,

As of December 31,

Price of Bitcoin on principal market (1)

NAV per Share (2)

Old Index Price (3)

Digital Asset Holdings per Share using Old Index Price (3)

The Trust performed an assessment of the principal market at December 31, 2021, 2020 and 2019, respectively, and identified the principal market as Coinbase Pro.

As of December 31, 2021, 2020 and 2019, respectively, 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.

Prior to February 1, 2022, the Trust calculated its Digital Asset Holdings and Digital Asset Holdings per Share by reference to the Old Index Price as of 4:00 p.m., New York time, on the valuation date.

The Old Index Price was calculated using non-GAAP

methodology and is not used in the Trust’s financial statements.

Effective February 1, 2022, the Trust began using the Index Price to calculate its Digital Asset Holdings and Digital Asset Holdings per Share as of 4:00 p.m., New York time, on the valuation date.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Historical Digital Asset Holdings and Bitcoin Prices” for further information on the Trust’s Digital Asset Holdings and Digital Asset Holdings per Share calculated using the Index Price.

The Digital Asset Exchanges included in the Index as of December 31, 2021 and 2020 were Coinbase Pro, LMAX Digital, Kraken and Bitstamp.

As of December 31, 2019 the Digital Asset Exchanges included in the Index consisted of Coinbase Pro, Bitstamp, Kraken, Bittrex and itBit.

Index Price (3)

Digital Asset Holdings per Share (3)

The Trust performed an assessment of the principal market at December 31, 2022, 2021 and 2020, and identified the principal market as Coinbase Pro.

As of December 31, 2022, 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 considered 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 price is derived from multiple Digital Asset Exchanges.

Business—Overview of the Bitcoin Industry and Market—Bitcoin Value—The Index and the Index Price” for a description of the Index and the Index Price.

The Digital Asset Exchanges included in the Index as of December 31, 2022 were Coinbase Pro, Binance.US, Kraken, and LMAX Digital.

The Digital Asset Exchanges used to calculate the Index Price as of December 31, 2021 and 2020 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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The Trust has not sought such relief as of the date of this Annual Report.

As of December 31, 2021, the Trust had a net closing balance of 644,809.96863835 Bitcoins with a total value of $30,417,111,251, based on the Old Index Price of $47,172.21 on December 31, 2021 (non-GAAP

methodology).

As of December 31, 2021, the total market value of the Trust’s Bitcoin based on the principal market (Coinbase Pro) of $45,867.86 on December 31, 2021 was $29,576,053,368.

As of December 31, 2020, the Trust had a net closing balance of 607,039.48515191 Bitcoins with a total value of $17,475,798,711, based on the Old Index Price of $28,788.57 on December 31, 2020 (non-GAAP

methodology).

As of December 31, 2020, the total market value of the Trust’s Bitcoin based on the principal market (Coinbase Pro) of $29,185.05 on December 31, 2020 was $17,716,477,727.

As of December 31, 2019, the Trust had a net closing balance of 261,192.14022299 Bitcoins with a total value of $1,880,768,856, based on the Old Index Price of $7,200.71 on December 31, 2019 (non-GAAP

methodology).

As of December 31, 2019, the total market value of the Trust’s Bitcoin based on the principal market (Coinbase Pro) of $7,145.00 on December 31, 2019 was $1,866,217,842.

As of December 31, 2022, the Trust had a net closing balance of 632,041.52945742 Bitcoins with a value of $10,463,820,425, based on the Index Price of $16,555.59 on December 31, 2022 (non-GAAP methodology).

As of December 31, 2022, the total market value of the Trust’s Bitcoin was $10,464,262,854 based on the price of a Bitcoin in the principal market (Coinbase Pro) of $16,556.29 on December 31, 2022.

As of December 31, 2021, the Trust had a net closing balance of 644,809.96863835 Bitcoins with a value of $29,577,014,135, based on the Index Price of $45,869.35 on December 31, 2021 (non-GAAP methodology).

As of December 31, 2021, the total market value of the Trust’s Bitcoin was $29,576,053,368 based on the price of a Bitcoin in the principal market (Coinbase Pro) of $45,867.86 on December 31, 2021.

As of December 31, 2020, the Trust had a net closing balance of 607,039.48515191 Bitcoins with a value of $17,716,750,894, based on the Index Price of $29,185.50 on December 31, 2020 (non-GAAP methodology).

As of December 31, 2020, the total market value of the Trust’s Bitcoin was $17,716,477,726 based on the price of a Bitcoin in the principal market (Coinbase Pro) of $29,185.05 on December 31, 2020.

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 Index Price, the Old Index Price, the Trust’s Digital Asset Holdings per Share based on the Old Index Price and the Index Price and the Trust’s net asset value per share as calculated in accordance with GAAP from September 25, 2013 to December 31, 2021.

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 net asset value per share as calculated in accordance with GAAP (as adjusted for the Share Split for periods prior to January 26, 2018) from September 25, 2013 (date of the first Creation Basket of the Trust) to December 31, 2022.

For more information on the determination of the Trust’s Digital Asset Holdings, see “Item 1.

Business—Overview of the Bitcoin Industry and Market—Bitcoin Value—The Index and the Index Price.”

The following table illustrates the movements in the Old Index Price from the beginning of the Trust’s operations on September 25, 2013 to December 31, 2021.

Since the beginning of the Trust’s operations, the Old Index Price has ranged from $117.03 to $67,397.98, with the straight average being $9,508.58.

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

Twelve months ended December 31, 2017

Twelve months ended December 31, 2018

Twelve months ended December 31, 2019

Twelve months ended December 31, 2020

Twelve months ended December 31, 2021

September 25, 2013 (the inception of the Trust’s operations) to December 31, 2021

The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on September 25, 2013 to December 31, 2021.

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 $9,535.36.

The following table illustrates the movements in the Index Price from January 1, 2018 to December 31, 2022.

During such period, the Index Price has ranged from $3,164.99 to $67,352.59, with the straight average being $20,313.57 through December 31, 2022.

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.

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Twelve months ended December 31, 2022

September 25, 2013 (the inception of the Trust’s operations) to December 31, 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 December 31, 2021.

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 $9,536.92:

January 1, 2018 to December 31, 2022

The following table illustrates the movements in the Digital Asset Market price of Bitcoin, as reported on the Trust’s principal market, from January 1, 2018 to December 31, 2022.

During such period, the price of Bitcoin has ranged from $3,164.61 to $67,371.70, with the straight average being $20,313.33 through December 31, 2022:

Digital Asset

Twelve months ended December 31, 2018

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Twelve months ended December 31, 2022

September 25, 2013 (the inception of the Trust’s operations) to December 31, 2021

January 1, 2018 to December 31, 2022

Secondary Market Trading

The Trust’s Shares have been quoted on OTCQX under the symbol GBTC since March 26, 2015.

The price of the Shares as quoted on OTCQX has varied significantly from the Bitcoins Holdings per Share.

From May 5, 2015 to December 31, 2021, the maximum premium of the closing price of the Shares quoted on OTCQX over the value of the Trust’s Digital Asset Holdings per Share was 142% (142% based on Old Index Price) and the average premium was 37% (37% based on Old Index Price), and the maximum discount of the closing price of the Shares quoted on OTCQX below the value of the Trust’s Digital Asset Holdings per Share was 21% (22% based on Old Index Price) and the average discount was 13% (13% based on Old Index Price).

As of December 31, 2021 the Trust’s shares were quoted on OTCQX at a discount of 20% (22% based on Old Index Price) to the Trust’s Digital Asset Holdings per Share.

The closing price of the Shares, as quoted on OTCQX at 4:00 p.m., New York time, on each business day, has been quoted at a discount on 217 days (217 days based on Old Index Price).

The following table sets out the range of high and low closing prices for the Shares as reported by OTCQX, the Trust’s NAV per Share and the Trust’s Digital Asset Holdings per Share using both the Old Index Price and the Index Price for each of the quarters since January 1, 2019.

NAV per Share(1)

Digital Asset

Share using Old

Index Price (2)

NAV per Share (1)

The price of the Shares as quoted on OTCQX has varied significantly from the Trust’s Digital Asset Holdings per Share.

From May 5, 2015 to December 31, 2022, the maximum premium of the closing price of the Shares quoted on OTCQX over the value of the Trust’s Digital Asset Holdings per Share was 142% and the average premium was 37%, and the maximum discount of the closing price of the Shares quoted on OTCQX below the value of the Trust’s Digital Asset Holdings per Share was 49% and the average discount was 23%.

The closing price of the Shares, as quoted on OTCQX at 4:00 p.m., New York time, on each business day, has been quoted at a discount on 468 days.

As of December 30, 2022, the last business day of the period, the Trust’s Shares were quoted on OTCQX at a discount of 45% to the Trust’s Digital Asset Holdings per Share.

The following table sets out the range of high and low closing prices for the Shares as reported by OTCQX, the Trust’s net asset value per Share calculated in accordance with GAAP and the Trust’s Digital Asset Holdings per Share for each of the quarters in the last three years.

Digital Asset

per Share (3)

Digital Asset

Share using Old

Index Price (2)

per Share (3)

First quarter

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The NAV is calculated using the fair value of Bitcoins based on the price provided by the Digital Asset Market that the Trust considers its principal market, which since December 31, 2016 is Coinbase Pro.

The Trust calculated its Digital Asset Holdings and Digital Asset Holdings per Share by reference to the Old Index Price as of 4:00 p.m., New York time, on the valuation date.

Effective February 1, 2022, the Trust began using the Index Price to calculate its Digital Asset Holdings and Digital Asset Holdings per Share as of 4:00 p.m., New York time, on the valuation date.

Business—Overview of the Bitcoin Industry and Market—Bitcoin Value—The Index and the Index Price—Determination of the Index Price.” The Trust’s Digital Asset Holdings are derived from the Index Price as represented by the Index as of 4:00 p.m., New York time, on the valuation date.

Prior to February 1, 2022, the Trust’s Digital Asset Holdings per Share was derived from the Old Index Price.

The Index Price is calculated using non-GAAP

methodology and is not used in the Trust’s financial statements.

Business —Trust Objective and Key Operating Metrics.”

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 based on the Index Price and the Old Index Price.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Principal Market and Fair Value Determination.”

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 Index Price is calculated using non-GAAP methodology and is not used in the Trust’s financial statements.

Business— Valuation of Bitcoin and Determination of Digital Asset Holdings.”

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.

GBTC Premium/(Discount):

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Digital Asset Holdings per Share ($)

The following chart sets out the historical premium and discount for the Shares as reported by OTCQX and the Trust’s Digital Asset Holdings per Share based on the Index Price and the Old Index Price.

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

GBTC Premium/(Discount):

2 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis