What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-08 · 71 added, 70 removed, 67 unchanged (68% of the section changed)

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Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those set forth under Item 1A.

Risk Factors or in Item 1A, Risk Factors or other sections of our Annual Report on Form 10-K

for the year ended December 31, 2019.

Factors that could cause or contribute to these differences include, but are not limited to, those set forth under Part I, Item 1A.

Risk Factors or in Part II, Item 1A.

Risk Factors or other sections of our Annual Report on Form 10-K for the year ended December 31, 2019.

Trust Overview

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

The Shares are designed to provide investors with a cost-effective and convenient way to invest in Bitcoin.

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.

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

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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.

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.

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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

and Exchange Markets, each as defined in the FASB 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 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.

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.

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 level of 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 -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.

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Review of Financial Results (unaudited)

Financial Highlights for the Three Months ended March 31, 2020 and 2019

Financial Highlights for the Three and Six Months Ended June 30, 2020 and 2019

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

Three Months Ended March 31,

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

Net (decrease) increase in net assets resulting from operations

Net realized and unrealized loss on investment in Bitcoin for the three months ended March 31, 2020 was ($271,710) which includes a realized gain of $6,480 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of ($278,190).

Net realized and unrealized loss on investment in Bitcoin for the year was driven by Bitcoin price

depreciation from $7,145.00 per Bitcoin as of December 31, 2019 to $6,474.20 per Bitcoin as of March 31, 2020.

Net decrease in net assets resulting from operations was ($283,503) for the three months ended March 31, 2020, which consisted of the net realized and unrealized loss on investment in Bitcoin, plus the Sponsor’s Fee of $11,793.

Net assets increased to $1,972,244 at March 31, 2020, a 6% increase for the period.

The increase in net assets resulted from the contribution of approximately 44,868 Bitcoin with a value of $389,529 to the Trust in connection with Share creations during the period, partially offset by the aforementioned Bitcoin price depreciation and the withdrawal of approximately 1,429 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the three months ended March 31, 2019 was $88,380 which includes a realized gain of $1,844 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $86,536.

Net realized and unrealized gain on investment in Bitcoin for the year was driven by Bitcoin price appreciation from $3,679.42 per Bitcoin as of December 31, 2018 to $4,094.99 per Bitcoin as of March 31, 2019.

Net increase in net assets resulting from operations was $84,518 for the three months ended March 31, 2019, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $3,862.

Net assets increased to $877,972 at March 31, 2019, a 17% increase for the period.

Three Months Ended

Six Months Ended

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 June 30, 2020 was $817,533 which includes a realized gain of $7,101 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $810,432.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $6,474.20 per Bitcoin as of March 31, 2020 to $9,134.09 per Bitcoin as of June 30, 2020.

Net increase in net assets resulting from operations was $802,730 for the three months ended June 30, 2020, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $14,803.

Net assets increased to $3,532,364 at June 30, 2020, a 79% increase for the three-month period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 83,791 Bitcoin with a value of $757,390 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 1,699 Bitcoin to pay the foregoing Sponsor’s Fee.

Sheet Arrangements

The Trust is not a party to any off-balance

sheet arrangements.

Net realized and unrealized gain on investment in Bitcoin for the three months ended June 30, 2019 was $1,598,779 which includes a realized gain of $5,711 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $1,593,068.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $4,094.99 per Bitcoin as of March 31, 2019 to $11,237.68 per Bitcoin as of June 30, 2019.

Net increase in net assets resulting from operations was $1,590,649 for the three months ended June 30, 2019, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $8,130.

Net assets increased to $2,533,280 at June 30, 2019, a 189% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 12,141 Bitcoin with a value of $64,659 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 1,115 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the six months ended June 30, 2020 was $545,824 , which includes a realized gain of $13,581 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $532,243 .

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 $9,134.09 per Bitcoin as of June 30, 2020 .

Net increase in net assets resulting from operations was $519,227 for the six months ended June 30, 2020 , which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $26,597 .

Net assets increase d to $3,532,364 at June 30, 2020 , a n 89% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 128,659 Bitcoin with a value of $1,146,920 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 3,128 Bitcoin to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in Bitcoin for the six months ended June 30, 2019 was $1,687,159, which includes a realized gain of $7,555 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $1,679,604.

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 $11,237.68 per Bitcoin as of June 30, 2019.

Net increase in net assets resulting from operations was $1,675,166 for the six months ended June 30, 2019, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $11,993.

Net assets increased to $2,533,280 at June 30, 2019, a 237% increase for the period.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 23,295 Bitcoin with a value of $106,491 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 2,145 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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Selected Operating Data

Three Months Ended March 31,

(All Bitcoin balances are rounded to the nearest whole

Three Months Ended

Six Months Ended

Opening balance

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Closing balance

As of March 31,

As of June 30,

Price of Bitcoin on principal market (1)

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Digital Asset Holdings per Share (3)

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

As of March 31, 2020 and 2019 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 June 30, 2020 and 2019, and identified the principal market as Coinbase Pro.

As of June 30, 2020 and 2019 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 March 31, 2020 were Coinbase Pro, LMAX Digital, itBit, Kraken and Bitstamp.

As of March 31, 2019, the Digital Asset Exchanges used to calculate the Index Price consisted of Coinbase Pro, Bittrex, Kraken, Bitstamp, and itBit.

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 June 30, 2020 were Coinbase Pro, LMAX Digital, Kraken and Bitstamp.

As of June 30, 2019, the Digital Asset Exchanges used to calculate the Index Price consisted of Coinbase Pro, Bittrex, Kraken, Bitstamp, and itBit.

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 currently has no intention of seeking regulatory approval to operate an ongoing redemption program.

As of March 31, 2020, the Trust had a net closing balance with a value of $1,969,892,276, based on the Index Price (non-GAAP

methodology).

As of March 31, 2020, the Trust had a total market value of $1,972,244,030, based on the principal market (Coinbase Pro).

As of March 29, 2019 (the last business day on which a Creation Basket could have been originated), the Trust had a net closing balance with a value of $869,774,518, based on the Index Price (non-GAAP

methodology).

As of March 31, 2019, the Trust had a net closing balance with a total value of $876,490,741, based on the Bitcoin Index Price of (non-GAAP

methodology).

As of March 31, 2019, the Trust had a total market value of $877,972,256,based on the principal market (Coinbase Pro).

As of June 30, 2020, the Trust had a net closing balance with a value of $3,540,938,092, based on the Index Price (non-GAAP methodology).

As of June 30, 2020, the Trust had a total market value of $3,532,364,439, based on the principal market (Coinbase Pro).

As of June 28, 2019 (the last business day on which a Creation Basket could have been originated during the period), the Trust had a net closing balance with a value of $2,562,246,069, based on the Index Price (non-GAAP methodology).

As of June 30, 2019, the Trust had a net closing balance with a total value of $2,599,767,184, based on the Index Price (non-GAAP methodology).

As of June 30, 2019, the Trust had a total market value of $2,533,279,662, 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 March 31, 2020.

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, 2020.

Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $18,756.45, with the straight average being $3,422.74.

Twelve months ended March 31, 2016

Twelve months ended March 31, 2017

Twelve months ended March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

September 25, 2013 (the inception of the Trust’s operations) to March 31, 2020

The following table illustrates the movements in the price of Bitcoin, as reported on the Trust’s principal market, from the beginning of the Trust’s operations on September 25, 2013 to March 31, 2020.

The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on September 25, 2013 to June 30, 2020.

Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $18,756.45, with the straight average being $3,615.13 through June 30, 2020.

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 June 30, 2016

Twelve months ended June 30, 2017

Twelve months ended June 30, 2018

Twelve months ended June 30, 2019

Twelve months ended June 30, 2020

September 25, 2013 (the first Creation Basket of the Trust) to June 30, 2020

Since the beginning of the Trust’s operations, the price of Bitcoin has ranged from $110.83 to $19,433.21, with the straight average being $3,629.41.

Twelve months ended March 31, 2016

Twelve months ended March 31, 2017

Twelve months ended March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

September 25, 2013 (the inception of the Trust’s operations) to March 31, 2020

Twelve months ended June 30, 2016

Twelve months ended June 30, 2017

Twelve months ended June 30, 2018

Twelve months ended June 30, 2019

Twelve months ended June 30, 2020

September 25, 2013 (the first Creation Basket of the Trust) to June 30, 2020

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