What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-04 · 54 added, 71 removed, 81 unchanged (61% of the section changed)

10 unchanged sentences

As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on Bitcoin per Share) to reflect the value of Bitcoins held by the Trust, determined by reference to the Index Price, less the Trust’s expenses and other liabilities.

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.

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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.

Effective October 3, 2022, the Sponsor entered into a Participant Agreement with Grayscale Securities, a wholly owned subsidiary of the Sponsor and an affiliate and related party of the Trust, pursuant to which Grayscale Securities has agreed to act as an Authorized Participant of the Trust.

The Participant Agreement provides the procedures for the creation of Shares of the Trust through the Authorized Participant, which are substantially similar to the procedures for the creation of Shares set forth in the Trust’s existing participant agreement with Genesis, except that the Authorized Participant may engage a Liquidity Provider to source Bitcoin on behalf of the Authorized Participant in connection with the creation of Shares.

Effective October 3, 2022, Grayscale Securities is the only acting Authorized Participant of the Trust.

Grayscale Securities has engaged Genesis as a Liquidity Provider.

The Trust only receives Bitcoin in connection with a creation order from the Authorized Participant 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 and may look to an Authorized Participant, or an Authorized Participant’s Liquidity Provider(s), when assessing entity-specific volume and level of activity for Digital Asset Markets.

The 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.

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.

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).

As of September 30, 2022, neither the Trust nor the Authorized Participant(s) has access to Digital Asset Exchanges that do not have a BitLicense, which would require a Digital Asset Exchange to follow anti-money laundering (“AML”) and know-your-customer (“KYC”) procedures and have 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 anti-money laundering (“AML”) and know-your-customer (“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.

2 unchanged sentences

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 recorded by the Trust may differ from proceeds collected by an Authorized Participant from the sale of the corresponding Shares to investors.

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.

Investment Company Considerations

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Review of Financial Results (unaudited)

Financial Highlights for the Three and Nine Months Ended September 30, 2022 and September 30, 2021

Financial Highlights for the Three Months Ended March 31, 2023 and March 31, 2022

(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,

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 gain on investment in Bitcoin for the three months ended September 30, 2022 was $379,521 which includes a realized gain of $31,890 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $347,631.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $18,895.01 per Bitcoin as of June 30, 2022 to $19,480.51 per Bitcoin as of September 30, 2022.

Net increase in net assets resulting from operations was $311,269 for the three months ended September 30, 2022, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $68,252.

Net assets increased to $12,374,718 at September 30, 2022, a 3% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation partially offset by the withdrawal of approximately 3,210 Bitcoin to pay the foregoing Sponsor’s Fee.

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 loss on investment in Bitcoin for the nine months ended September 30, 2022 was $(16,898,390) which includes a realized gain of $194,506 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of $(17,092,896).

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 $19,480.51 per Bitcoin as of September 30, 2022.

Net decrease in net assets resulting from operations was $(17,201,335) for the nine months ended September 30, 2022, which consisted of the net realized and unrealized loss on investment in Bitcoin, plus the Sponsor’s Fee of $302,945.

Net assets decreased to $12,374,718 at September 30, 2022, a (58)% decrease for the period.

Net realized and unrealized gain on investment in Bitcoin for the three months ended March 31, 2023 was $7,511,132 which includes a realized gain of $35,868 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $7,475,264.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $16,556.29 per Bitcoin as of December 31, 2022 to $28,467.79 per Bitcoin as of March 31, 2023.

Net increase in net assets resulting from operations was $7,440,047 for the three months ended March 31, 2023, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $71,085.

Net assets increased to $17,904,310 at March 31, 2023, a 71% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and by the withdrawal of approximately 3,110 Bitcoin to pay the foregoing Sponsor’s Fee.

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 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.

Cash Resources and Liquidity

7 unchanged sentences

Selected Operating Data

Three Months Ended

September 30,

Nine Months Ended

September 30,

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

Three Months Ended March 31,

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

Opening Balance

6 unchanged sentences

Closing Balance

As of September 30,

As of March 31,

Price of Bitcoin on principal market (1)

2 unchanged sentences

Digital Asset Holdings per Share (3)

The Trust performed an assessment of the principal market at September 30, 2022 and 2021, and identified the principal market as Coinbase Pro.

As of September 30, 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 performed an assessment of the principal market at March 31, 2023 and 2022, and identified the principal market as Coinbase Pro.

As of March 31, 2023 and 2022, 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.

1 unchanged sentence

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 Index and the Index Price.

The Digital Asset Exchanges used to calculate the Index Price as of September 30, 2022 and 2021 were Coinbase Pro, Bitstamp, Kraken, and LMAX Digital.

Effective October 29, 2022, the Index Provider removed Bitstamp from the Index due to the exchange failing the minimum liquidity requirement and added Binance.US to the Index as part of its scheduled quarterly review.

The Digital Asset Exchanges used to calculate the Index Price as of March 31, 2023 were Coinbase Pro, Binance.US, Kraken, and LMAX Digital.

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

Business—Valuation of Bitcoin and Determination of Digital Asset Holdings” in the Trust’s Annual Report on Form 10-K for a description of the Trust’s Digital Asset Holdings per Share.

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

As of September 30, 2022, the Trust had a net closing balance with a value of $12,381,743,912 based on the Index Price (non-GAAP methodology).

As of September 30, 2022, the Trust had a total market value of $12,374,718,203, based on the principal market (Coinbase Pro).

As of September 30, 2021, the Trust had a net closing balance with a total value of $28,241,542,775, 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 March 31, 2023, the Trust had a net closing balance of 628,932.20027878 Bitcoins with a value of $17,902,240,615 based on the Index Price of $28,464.50 on March 31, 2023 (non-GAAP methodology).

As of March 31, 2023, the total market value of the Trust’s Bitcoin was $17,904,309,802, based on the price of a Bitcoin in the principal market (Coinbase Pro) of $28,467.79 on March 31, 2023.

As of March 31, 2022, the Trust had a net closing balance of 641,637.82510544 Bitcoins with a value of $29,275,033,757 based on the Index Price of $45,625.48 on March 31, 2022 (non-GAAP methodology).

As of March 31, 2022, the total market value of the Trust’s Bitcoin was $29,255,829,536, based on the price of a Bitcoin in the principal market (Coinbase Pro) of $45,595.55 on March 31, 2022.

Historical Digital Asset Holdings and Bitcoin Prices

2 unchanged sentences

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, 2022:

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, 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 $11,365.05 through September 30, 2022.

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 September 30, 2018

Twelve months ended September 30, 2019

Twelve months ended September 30, 2020

Twelve months ended September 30, 2021

Twelve months ended September 30, 2022

September 25, 2013 (the first Creation Basket of the Trust) to September 30, 2022

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, 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 $11,366.41 through September 30, 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” in the Trust’s Annual Report on Form 10-K.

The following table illustrates the movements in the Index Price from April 1, 2018 to March 31, 2023.

During such period, the Index Price has ranged from $3,164.99 to $67,352.59, with the straight average being $20,925.15 through March 31, 2023.

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.

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

Twelve months ended March 31, 2022

Twelve months ended March 31, 2023

April 1, 2018 to March 31, 2023

The following table illustrates the movements in the Digital Asset Market price of Bitcoin, as reported on the Trust’s principal market, from April 1, 2018 to March 31, 2023.

During such period, the price of Bitcoin has ranged from $3,164.61 to $67,371.70, with the straight average being $20,925.40 through March 31, 2023.

Digital Asset

Twelve months ended September 30, 2018

Twelve months ended September 30, 2019

Twelve months ended September 30, 2020

Twelve months ended September 30, 2021

Twelve months ended September 30, 2022

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

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

Twelve months ended March 31, 2022

Twelve months ended March 31, 2023

April 1, 2018 to March 31, 2023

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 from May 5, 2015 to March 31, 2023.

GBTC Premium/(Discount):

1 unchanged sentence

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.

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 from May 5, 2015 to March 31, 2023.

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-Q

Item 2. Management’s Discussion and Analysis