Hashdex Nasdaq CME Crypto Index ETF 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This information should be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Quarterly Report (the “ Report ” ). The discussion and analysis which follows may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. Words such as “ anticipate, ” “ expect, ” “ intend, ” “ plan, ” “ believe, ” “ seek, ” “ outlook ” and “ estimate, ” as well as similar words and phrases, signify forward-looking statements. Hashdex Nasdaq Crypto Index US ETF ’ s (the “ Trust ’ s ” ) forward-looking statements are not a guarantee of future results and conditions, and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements. You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, Hashdex Asset Management Ltd. (the “ Sponsor ” ) undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report. Overview/Introduction The Trust is a Delaware statutory trust organized on July 12, 2024 . The Trust is not a commodity pool under the Commodity Exchange Act of 1936, as amended, and the Sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator or a commodity trading advisor with respect to the Trust. The Trust issues shares of beneficial interest, called “Shares,” representing fractional undivided beneficial interests in the Trust. The Shares are listed and traded on The Nasdaq Stock Market, LLC (the “Exchange”). The Trust’s investment objective is to ensure that daily changes in the net asset value (“NAV”) of the Shares correspond to the daily changes of the Nasdaq Crypto US Settlement Price Index (NCIUSS) (the “Index”) , less expenses and liabilities of the Trust, by investing in the index crypto asset constituents of the Index (“Index Constituents”). Under its current investment strategy, the Trust invests in bitcoin and ether. Under limited circumstances, the Trust will hold cash to bear its expenses. The Sponsor will employ a passive investment strategy that is intended to track the changes in the Index regardless of whether the Index goes up or down, meaning that the Sponsor will not try to “beat” the Index. It also means that the Trust will not utilize leverage. In order to track the Index as closely as possible, the Trust will aim to invest bitcoin and ether in the same proportions as the Index. The Trust operates pursuant to the Trust’s Amended and Restated Trust Agreement (the “Trust Agreement”), dated January 22, 2025 . On February 13, 2025, the initial Form S-1 for the Trust was declared effective by the U.S. Securities and Exchange Commission (“SEC”), and registered an indeterminate number of Shares. Coinbase Custody Trust Company, LLC and BitGo Trust Company, Inc (the “Crypto Custodians”) are the custodian for the Trust’s crypto holdings; and U.S. Bank National Association is the custodian for the Trust’s cash and cash equivalents holdings (the “Cash Custodian” and together with the Crypto Custodians, the “Custodians”). The sponsor of the Trust is Hashdex Asset Management Ltd. (the “Sponsor”). C SC Delaware Trust Company is the trustee of the Trust (the “Trustee”). The Trust intends to be treated as a partnership for U.S. federal income tax purposes. The Sponsor’s responsibilities are discussed below in the section entitled “ The Sponsor’s Operations. ” While investors will purchase and sell Shares through their broker-dealer, the Trust continuously offers creation baskets consisting of 10,000 Shares at their net asset value (“NAV”) to certain financial institutions that have entered into an agreement with the Sponsor. 2 Recent Developments Strategy Change On February 18, 2025, the Exchange filed with the SEC, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, a proposed rule change to adopt new Nasdaq Rule 5712, which would provide for the listing and trading of Commodity- and Digital Asset-Based Investment Interests, including the Shares of the Hashdex Nasdaq Crypto Index US ETF. The proposal also seeks to amend certain representations regarding the investment objective and strategy of the Trust. As of the date hereof, the SEC has not approved the proposed strategy change or the listing transfer under Rule 5712, and has designated June 5, 2025, as the deadline to approve, disapprove, or institute proceedings on the proposed rule change. Trust Overview The Trust is designed to provide investors with price exposure to certain crypto assets, namely, those included in the Index. The Trust issues Shares that trade on The Nasdaq Stock Market, LLC under the symbol “NCIQ.” Shares can be purchased and sold by investors through their broker-dealer. Purchasing Shares of the Trust is subject to the risks of crypto assets as well as the additional risks of investing in the Trust. The Sponsor will employ a passive investment strategy that is intended to track the changes in the Index regardless of whether the Index goes up or goes down. Because the Trust’s investment objective is to track the price of the Index, the price of the Shares may vary from changes in the spot price of bitcoin and ether. U.S. Bancorp Fund Services, LLC (d/b/a U.S. Bank Global Fund Services) (the “Administrator”) calculates an approximate net asset value every 15 seconds throughout each day that the Trust’s Shares are traded on the Exchange. The Trust will not utilize leverage, derivatives, or any similar arrangements in seeking to meet its investment objective. The Trust, the Sponsor, and their service providers, including the Custodians, will not loan or pledge the Trust’s assets, nor will the Trust’s assets serve as collateral for any loan or similar arrangement. Bitcoin Overview Bitcoin is a crypto asset or cryptocurrency that is a unit of account on the bitcoin network (“Bitcoin Network”), an open source, decentralized peer-to-peer computer network. The ownership and operation of bitcoin is determined by purchasers in the Bitcoin Network. The Bitcoin Network connects computers that run publicly accessible, or open source, software that follows the rules and procedures governing the Bitcoin Network. This is commonly referred to as the “Bitcoin Protocol”. Bitcoin may be held, may be used to purchase goods and services or may be exchanged for fiat currency. No single entity owns or operates the Bitcoin Network, and the value of bitcoin is not backed by any government, corporation or other entity. Instead, the value of bitcoin is determined in part by the supply and demand in markets created to facilitate the trading of bitcoin. Public key cryptography protects the ownership and transaction records for bitcoin. Because the source code for the Bitcoin Network is open source, anyone can contribute to its development. At this time, the ultimate supply of bitcoin is finite and limited to 21 million “coins” with the number of bitcoin available increasing gradually as new bitcoin supplies are mined until the 21 million current protocol cap is reached. 3 Ether Overview Ether is a crypto asset that operates on the Ethereum Network (“Ethereum Network”), a decentralized system maintained by a peer-to-peer network of computers using cryptographic protocols. This infrastructure allows the exchange of ether (ETH), which is recorded on a public blockchain. Ether can be used for transactions, purchasing computational power on the network, or converted to fiat currencies. Ethereum also supports smart contracts, which are self-executing programs that facilitate various transactions and applications such as creating markets, registering debts, and representing property ownership. These smart contracts run on the Ethereum Network and require ether for execution. Ethereum is one of several projects aimed at expanding blockchain use beyond simple peer-to-peer transactions. The Ethereum Network is the largest and longest-running smart contract platform, notable for its market cap, availability of decentralized applications (DApps), and development activity. Smart contracts on Ethereum are used across various fields, particularly in decentralized financial services (DeFi), which leverage interoperable protocols and applications to create an open and transparent financial system. Ethereum was conceptualized in 2013 by Vitalik Buterin and formally developed by Ethereum Switzerland GmbH (EthSuisse) and the Ethereum Foundation. The network launched on July 30, 2015, with an initial creation of 72 million ether, distinguishing it from other crypto assets like bitcoin, which rely solely on a mining process for creation. The Trust, Sponsor, Custodian, or any other person associated with the Trust will not, directly or indirectly, engage in any action that would result in any portion of the Trust’s ether becoming subject to Ethereum Networks’ proof-of-stake validation. The Trust’s ether will not be used to earn additional ether, generate income, or accrue any form of earnings, other than potential price value increase. The Index Methodology The Trust will use the Index as a reference to track and measure its performance compared to the price performance of the markets for the Index Constituents and for valuation purposes when calculating the Trust’s NAV. The Index is designed to measure the performance of a portion of the overall crypto asset market. The Index does not track the overall performance of all crypto assets generally, nor the performance of any specific crypto assets. The Index is owned and administered by Nasdaq, Inc. (“Index Provider”) and is calculated by CF Benchmarks Limited (“Calculation Agent”), which is experienced in calculating and administering crypto assets indices. The Calculation Agent publishes daily the Index Constituents, the Index Constituents’ weightings, the intraday value of the Index (under the ticker NCIUS), and the daily settlement value of the Index (under the ticker NCIUSS), which is effectively the Index’s closing value. The Index is derived from a rules-based methodology (“Index Rules”), which is overseen by the Nasdaq Cryptocurrency Index Oversight Committee (“NCIOC”). The NCIOC governs the Index and is responsible for its implementation, administration, and general oversight, including assessing crypto assets for eligibility, adjustments to account for regulatory changes and periodic methodology reviews. The NCIOC shall approve any material changes to the methodology and review the Index methodology at least on an annual basis. The Index Rules may only be changed by the Index Provider with the approval of the NCIOC. Neither the Trust, nor the Sponsor have control over the Index Rules or the Index administration. Changes to Index Rules may result in adverse effects to the Trust and/or in the ability of the Sponsor to implement the Trust’s investment strategy. Crypto assets are eligible for inclusion in the Index if they satisfy the criteria set forth under the Nasdaq Crypto US Index methodology, which includes being listed on a U.S.-regulated crypto asset trading platform at the time of the inclusion or serving as the underlying asset for a derivative instrument listed on a U.S.-regulated derivatives platform. The Index adjusts its constituents and weightings on a quarterly basis to reflect changes in the crypto asset markets. Currently, there are no U.S.-regulated crypto asset trading platforms and therefore, no crypto assets are eligible for inclusion in the Index based on this criteria as of the date of this prospectus. Notwithstanding inclusion in the eligible list, the Nasdaq Index Management Committee reserves the right to further exclude any additional assets based on one or more factors, including but not limited to, its review of general reputational, fraud, manipulation, or security concerns connected to the asset. Assets that, in the sole discretion of the Nasdaq Index Management Committee, do not offer utility, do not facilitate novel use cases, or that do not exhibit technical, structural or crypto-economic innovation (e.g., assets inspired by memes or internet jokes) may also be excluded. The Nasdaq Crypto US Index methodology has been written and designed to be forward-looking to account for any potential future regulatory changes, including potential changes where crypto asset trading platforms would be regulated by U.S. regulators such as the SEC and the CFTC. The Index will be reconstituted and rebalanced quarterly, on the first Business Day in March, June, September, and December (“Reconstitution Date”). 4 The Trust’s Investment Strategies The Trust will gain exposure to crypto assets by investing in the Index Constituents. It will maintain cash balances only as necessary to cover currently due Trust-payable expenses. Absent any Share redemption orders or due expenses, the Trust’s portfolio will consist solely of the Index Constituents, that currently comprise only bitcoin and ether. The Trust will not invest in any crypto assets outside the Index Constituents, nor will it invest in crypto securities, tokenized assets, or stablecoins. If any crypto asset other than bitcoin and ether becomes eligible for inclusion in the Index, the Sponsor will transition to a sample replication strategy, with only bitcoin and ether in the same proportions determined by the Index. In the event the Trust seeks to change this and return to a full replication strategy, a rule filing under Rule 19b-4 of the Exchange Act would need to be filed with the SEC by the Exchange seeking approval to amend its listing rules to permit the Trust to hold the new Index Constituents. The ratio of investment in the Index Constituents, representing the proportion of quantities of bitcoin and ether per Share, changes quarterly as described below in The Trust’s Benchmark. As of May 13, 2025, the crypto asset constituents of the Index Constituents and their weightings were as follows: Constituents Weight Bitcoin (BTC) 87.2 % Ether (ETH) 12.8 % The Sponsor will employ a passive investment strategy intended to track the Index, regardless of its direction, meaning that the Sponsor will not attempt to outperform the Index. This strategy aims to allow investors to buy and sell Shares to hedge against losses in Index-related transactions or to gain price exposure to the Index. Consistent with its investment objective, the Trust will not use its investments to enhance leverage or seek performance multiples or inverse multiples of the Index. The Trust’s portfolio is rebalanced quarterly, on the first business day in March, June, September, and December, to ensure the portfolio remains aligned with the Index’s composition and weightings. The rebalancing process involves adjusting the quantities of bitcoin and ether held by the Trust to reflect changes in the Index Constituents’ relative weights. This rebalancing is executed by purchasing or selling the necessary quantities of bitcoin and ether to match the new weightings of the Index. The Trust will bear all transaction costs associated with rebalancing, including brokerage commissions, transaction fees, and any potential market impact costs. These rebalancing costs may slightly reduce the Trust’s performance, as such expenses will be deducted from the Trust’s assets. However, these costs are expected to be limited to the standard fees for bitcoin and ether transactions and are not anticipated to impact the Trust’s ability to track the Index materially. Calculating NAV The Trust’s NAV per Share will be calculated by taking the current market value of its total assets, subtracting any liabilities, and dividing that total by the number of Shares. The assets of the Trust will consist of bitcoin, ether, cash and cash equivalents. The Sponsor has the exclusive authority to determine the Trust’s NAV, which it has delegated to the Administrator. The Administrator of the Trust will calculate the NAV once each Business Day, as of the earlier of the close of the Nasdaq or 4:00 p.m. New York time. For purposes of making these calculations, a “Business Day” means any day other than a day when Nasdaq is closed for regular trading. In determining the Trust’s holdings, the Administrator will value the Index Constituents held by the Trust based on the Index Constituent Settlement Price, unless the prices are not available or the Administrator, in its sole discretion, determines that the Index Constituent Settlement Price is unreliable (“Fair Value Event”). In the instance of a Fair Value Event, the Trust’s holdings may be fair valued on a temporary basis in accordance with the fair value policies approved by the Administrator. In the instance of a Fair Value Event and pursuant to the Administrator’s fair valuation policies and procedures, VWAP or Volume Weighted Median Prices (VWMP) from another index administrator (“Secondary Index”) will be utilized. 5 If a Secondary Index is also not available or the Administrator in its sole discretion determines the Secondary Index is unreliable, the price set by the Trust’s principal market as of 4:00 p.m. ET, on the valuation date will be utilized. In the event the principal market price is not available or the Administrator in its sole discretion determines the principal market valuation is unreliable, the Administrator will use its best judgment to determine a good faith estimate of fair value. The Administrator identifies and determines the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for crypto assets consistent with the application of fair value measurement framework in FASB (Financial Accounting Standards Board) Accounting standards codification (ASC) 820-10. The principal market is the market where the reporting entity would normally enter into a transaction to sell the asset or transfer the liability. The principal market must be available to and be accessible by the reporting entity. The reporting entity is the Trust. If the Index Constituent Settlement Price is not used to determine the Trust’s crypto asset holdings, Shareholders will be notified through a prospectus supplement, a current report on Form 8-K, the Trust’s periodic Exchange Act reports and/or on the Trust’s website and, if this index change is on a permanent basis, a filing with the Commission under Rule 19b-4 of the Act will be required. A Fair Value Event value determination will be based upon all available factors that the Sponsor or the Administrator deems relevant at the time of the determination and may be based on analytical values determined by the Sponsor or Administrator using third party valuation models. Fair value policies approved by the Administrator will seek to determine the fair value price that the Trust might reasonably expect to receive from the current sale of that asset or liability in an arm’s-length transaction on the date on which the asset or liability is being valued consistent with “Relevant Transactions”. A “Relevant Transaction” is any crypto asset versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 p.m. ET on a Core Crypto Platform in the BTC/USD pair that is reported and disseminated by a Core Crypto Platform through its publicly available application programming interface and observed by the Index Provider. Indicative Trust Value In order to provide updated information relating to the Trust for use by Shareholders and market professionals, the Sponsor will engage an independent calculator to calculate an updated Indicative Trust Value (“ITV”). The ITV will be calculated by using the prior day’s closing NAV per Share of the Trust as a base and will be updated throughout the regular market session of 9:30 a.m. E.T. to 4:00 p.m. E.T. (the “Regular Market Session”) to reflect changes in the value of the Trust’s holdings during the trading day. For purposes of calculating the ITV, the Trust’s crypto asset holdings will be priced using a real time version of the Index. The ITV will be disseminated on a per Share basis every 15 seconds during the Regular Market Session and be widely disseminated by one or more major market data vendors during the Regular Market Session. Several major market data vendors display and/or make widely available ITVs taken from the Consolidated Tape Association (CTA) or other data feeds. Results of Operations The Period Ended March 31, 2025 On January 21, 2025, the Sponsor provided the initial capital of $250,000 for the initial sale of 10,000 shares. These initial Shares were subsequently redeemed on February 13, 2025. On the same day, February 13, 2025, 40,000 shares (equivalent to $1,000,000) were created. Since inception, the Trust’s net asset value increased to $88,730,642 as of March 31, 2025. From January 21, 2025, the increase in the Trust’s net asset value resulted primarily from an increase in the number of outstanding Shares, which rose from 10,000 Shares to 4,250,000 Shares at March 31, 2025. Over the period, a total of 4,310,000 shares (431 baskets) were created, and 60,000 shares (6 baskets) were redeemed. 6 The 16.48% decrease in the NAV for purposes of the Trust’s periodic financial statements (“Financial Statement NAV”) from $25.00 at January 21, 2025 to $20.88 at March 31, 2025 is directly related to the decline in the prices of bitcoin and ether. Between February 13, 2025 (the date the Trust first acquired crypto assets), and March 31, 2025, the price of bitcoin decreased by 14.19% and the price of ether decreased by 31.00%. The Financial Statement NAV decrease is also related to the Sponsor’s fee, which was $11,628, and other expenses, which was $50 for the period. The NAV of $25.6596 on February 20, 2025 was the highest during the period, compared with a low during the period of $20.1348 on March 10, 2025. Net decrease in net assets resulting from operations for the period ended March 31, 2025 was $3,953,064, resulting from an unrealized loss on investment in bitcoin and ether of $3,745,484 and, a net realized loss of $195,902. Other than the net Sponsor’s fee of $11,628, the Trust had $50 expense during the period. Liquidity and Capital Resources The Trust is not aware of any trends, demands, commitments, events, or uncertainties that are reasonably likely to result in material changes to its liquidity needs. The Trust’s only ordinary recurring expense is the management fee paid to the Sponsor, monthly in arrears, in an amount equal to 0.50% per annum of the daily NAV of the Trust (the “Management Fee”). The Sponsor may, at its sole discretion and from time to time, waive all or a portion of the Management Fee for stated periods of time. The Sponsor is under no obligation to waive any portion of its fees, and any such waiver shall create no obligation to waive any such fees during any period not covered by the waiver. The Sponsor has agreed to temporarily reduce its Management Fee to 0.25% per annum through December 31, 2025. After December 31, 2025, the standard 0.50% annual Management Fee will apply. The Management Fee is paid in consideration of the Sponsor’s services related to the management of the Trust’s business and affairs. Creation with cash may cause the Trust to incur certain costs including brokerage commissions and redemptions of creation units with cash may result in the recognition of gains or losses that the Trust might not have incurred if it had made redemptions in-kind. The Trust pays all of its respective brokerage commissions, including applicable exchange fees and give-up fees, and other transaction related fees and expenses charged in connection with trading activities. The Trust also pays all fees and commissions related to the sale and purchase of spot crypto assets, including any transaction fees for on-chain transfers of the Index Constituent. The Sponsor pays all other routine operational, administrative and other ordinary expenses of the Trust, including but not limited to, fees and expenses of the Administrator, Trustee, Custodians, Marketing Agent, Transfer Agent, licensors, accounting and audit fees and expenses, tax preparation expenses, ongoing SEC registration fees, report preparation and mailing expenses, and up to $250,000 per annum in ordinary legal fees and expenses. The Sponsor may determine in its sole discretion to assume legal fees and expenses of the Trust in excess of the $250,000 per annum. The Trust pays all of its non-recurring and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual fees and expenses are unexpected or unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses also include material expenses which are not currently anticipated obligations of the Trust. Routine operational, administrative and other ordinary expenses are not deemed extraordinary expenses. General expenses of the Trust will be allocated to the Trust as determined by the Sponsor in its discretion. The Trust may be required to indemnify the Sponsor, and the Trust and/or the Sponsor may be required to indemnify the Trust’s service providers under certain circumstances. Unless such expenses are specifically attributable the Trust or arise out of the Trust’s operations, any such expenses will be allocated by the Sponsor using a pro rata methodology that allocates certain Trust expenses to the Trust. Expenses paid by Sponsor are not subject to any caps or limits. 7 Off-Balance Sheet Arrangements The Trust does not have any off-balance sheet arrangements. Critical Accounting Estimates The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s application of accounting policies. Below is a summary of accounting policies on cash and investment valuation. There were no material estimates involving a significant level of estimation uncertainty that had or are reasonably likely to have had a material impact on the Trust’s financial condition used in the preparation of the financial statements. In addition, please refer to Note 2 to the Financial Statements included in this report for further discussion of the Trust’s accounting policies. Cash Cash includes non-interest bearing, non-restricted cash maintained with one financial institution that does not exceed U.S. federally insured limits. Investment Valuation The Trust’s policy is to value investments held at fair value. The Trust follows the provisions of ASC 820, Fair Value Measurements (“ASC 820”). ASC 820 provides guidance for determining fair value and requires increased disclosure regarding the inputs to valuation techniques used to measure fair value. ASC 820 determines fair value to be the price that would be received for ether in a current sale, which assumes an exit price resulting from an orderly transaction between market participants on the measurement date. ASC 820-10 requires the assumption that ether is sold in its principal market to market participants (or in the absence of a principal market, the most advantageous market). Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.