What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 54 added, 43 removed, 93 unchanged (51% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with U.S.

The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable.

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The Trust holds Bitcoins and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of Bitcoins.

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.

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.

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, with variations that have at times been substantial.

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The Trust uses fair value as its method of accounting for Bitcoin in accordance with its classification as an investment company for accounting purposes.

The Trust is not registered under the Investment Company Act of 1940.

The Trust is not a registered investment company under the Investment Company Act of 1940.

GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.

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Review of Financial Results (unaudited)

Financial Highlights for the Three Months Ended March 31, 2021 and 2020

Financial Highlights for the Three and Six Months Ended June 30, 2021 and 2020

(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 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 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.

Three Months Ended June 30,

Six Months Ended June 30,

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 June 30, 2021 was ($15,565,070) which includes a realized gain of $114,595 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of ($15,679,665).

Net realized and unrealized loss on investment in Bitcoin for the period was driven by Bitcoin price depreciation from $58,601.27 per Bitcoin as of March 31, 2021 to $34,764.81 per Bitcoin as of June 30, 2021.

Net decrease in net assets resulting from operations was ($15,716,544) for the three months ended June 30, 2021, which consisted of the net realized and unrealized loss on investment in Bitcoin, plus the Sponsor’s Fee of $151,474.

Net assets decreased to $22,643,855 at June 30, 2021, a 41% decrease for the period.

The decrease in net assets resulted from the aforementioned Bitcoin price depreciation and the withdrawal of approximately 3,256 Bitcoin to pay the foregoing Sponsor’s Fee.

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 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.

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 period 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 six months ended June 30, 2021 was $3,317,924 which includes a realized gain of $224,529 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $3,093,395.

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 $34,764.81 per Bitcoin as of June 30, 2021.

in net assets resulting from operations was $3,022,150 for the six months ended June 30, 2021 , which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $295,774 .

Net assets increased to $22,643,855 at June 30, 2021 , a 28% 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 6,434 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 increased to $3,532,364 at June 30, 2020, an 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.

Off-Balance Sheet Arrangements

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

When selling Bitcoins, Incidental Rights and/or IR Virtual Currency 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, 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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Selected Operating Data

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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, 2021 and 2020, and identified the principal market as Coinbase Pro.

As of March 31, 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 June 30, 2021 and 2020, and identified the principal market as Coinbase Pro.

As of June 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’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.

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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, 2021 were Coinbase Pro, Bitstamp, Kraken, and LMAX Digital.

As of March 31, 2020, the Digital Asset Exchanges used to calculate the Index Price consisted of Coinbase Pro, Bitstamp, itBit, Kraken, and LMAX Digital.

The Digital Asset Exchanges used to calculate the Index Price as of June 30, 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 currently has no intention of seeking regulatory approval to operate an ongoing redemption program.

As of March 31, 2021, the Trust had a net closing balance with a value of $38,423,240,437, 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).

As of March 31, 2020 , the Trust had a net closing balance with a total 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 June 30, 2021, the Trust had a net closing balance with a value of $22,824,902,518, based on the Index Price (non-GAAP methodology).

As of June 30, 2021, the Trust had a total market value of $22,643,854,903, based on the principal market (Coinbase Pro).

As of June 30, 2020, the Trust had a net closing balance with a total 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).

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, 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, 2021.

Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $60,609.43, with the straight average being $5,644.64 through March 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 June 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 $6,956.54 through June 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.

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Last business day

Twelve months ended March 31, 2017

Twelve months ended March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

September 25, 2013 (the first Creation Basket of the Trust) to March 31, 2021

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, 2021.

Twelve months ended June 30, 2017

Twelve months ended June 30, 2018

Twelve months ended June 30, 2019

Twelve months ended June 30, 2020

Twelve months ended June 30, 2021

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

Since the beginning of the Trust’s operations, the price of Bitcoin has ranged from $110.83 to $63,466.92, with the straight average being $6,980.57.

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Last business day

Twelve months ended March 31, 2017

Twelve months ended March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

September 25, 2013 (the first Creation Basket of the Trust) to March 31, 2021

Twelve months ended June 30, 2017

Twelve months ended June 30, 2018

Twelve months ended June 30, 2019

Twelve months ended June 30, 2020

Twelve months ended June 30, 2021

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

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