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Item 7. Management’s Discussion and Analysis

2023-03-21 compared with 2022-03-30 · 156 added, 122 removed, 65 unchanged (81% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

following discussion and analysis of our financial condition and results of operations should be read together with our audited

financial statements and related notes included elsewhere in this Annual Report, which have been prepared in accordance with generally

accepted accounting principles in the United States (“U.S.

The following discussion may contain forward-looking

statements based on assumptions we believe to be reasonable.

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 Part I, Item 1A.

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 our audited financial statements

and related notes included elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting

principles in the United States (“U.S.

The following discussion may contain forward-looking statements based

on assumptions we believe to be reasonable.

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

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 in this Annual Report.

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The investment objective

of the Trust is for the Units to reflect the performance of Bitcoin as measured by reference to the Index, less the aggregate Trust

expenses and other liabilities.

To date, the Trust has not met its investment objective.

of the Trust is for the Units to reflect the performance of Bitcoin as measured by reference to Coin Metrics CMBI Bitcoin Index

(the “Index”), less the aggregate Trust expenses and other liabilities.

To date, the Trust has not met its investment

Units are intended to constitute a cost-effective and convenient means of gaining investment exposure to Bitcoin.

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with an alternative that constitutes a relatively cost-effective way to participate in Bitcoin markets through the securities market.

Critical Accounting Policies

and Estimates

Investment Transactions and

Revenue Recognition

The Units have been quoted on OTC Markets since February 12, 2021, and on OTCQX under the symbol “OBTC” since February

26, 2021, and to date have not met their investment objective.

this time, the Trust is not operating a redemption program for Units and therefore Units are not redeemable by the Trust.

the Trust may halt issuances of Units for extended periods of time.

As a result, the value of the Units of the Trust may not

approximate, and when

traded on any secondary market, the Units may trade at a substantial premium over, or discount to, the Trust’s NAV per Unit.

Critical Accounting Policies and Estimates

Investment Transactions and Revenue

Trust considers investment transactions to be the receipt of Bitcoin for Units creations and the delivery of Bitcoin for Units

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At this time, the Trust is not accepting redemption requests from unitholders.

The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized

appreciation or depreciation on investments.

The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as the net change in

unrealized appreciation or depreciation on investments.

Realized gains and losses are calculated using a first in first out method.

gains and losses are recognized in connection with transactions including settling obligations for the Management Fee in Bitcoin.

Market and Fair Value Determination

Realized gains and losses are recognized in connection with transactions including settling obligations for the Management Fee

other expenses in Bitcoin.

Principal Market

and Fair Value Determination

determine which Bitcoin market will serve as 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

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 purchases

Bitcoin directly from various counterparties, such as Galaxy Digital, Jane Street and Cumberland DRW LLC, and does not itself transact

advantageous market) for purposes of calculating the Trust’s NAV, the Trust follows FASB 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 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 purchases Bitcoin

directly from various counterparties, such as Galaxy Digital, Jane Street and Cumberland DRW LLC, and does not itself transact

in any Bitcoin markets.

Therefore, the Trust looks to these counterparties when assessing entity-specific and market-based volume

and the level of activity in the Bitcoin markets.

The Trust utilizes the Bitcoin Market Price to determine the value of Bitcoin

at any given time.

The Trust evaluates its principal market selection (or in the absence of a principal market the most advantageous

market) at least annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Bitcoin

market’s trading volume and level of activity in the trailing twelve months, (ii) if any Bitcoin markets have developed that

the Trust has access to, or (iii) if recent changes to a Bitcoin 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 Trust does not anticipate changing its principal market more frequently than annually, in connection with its annual evaluation

of its principal market selection and annual financial audit.

Each annual evaluation will take into account the findings from the

Trust’s quarterly reviews.

The cost basis of

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

of contribution to the Trust.

The Bitcoin cost basis recorded by the Trust may differ from the value of the proceeds collected

by the Sponsor from the sale of the corresponding Units to investors.

The purchase price of Bitcoin from our counterparties may vary significantly.

The Trust looks to these

counterparties when assessing entity-specific and market-based volume and the level of activity in the Bitcoin markets.

determines the value of Bitcoin at any given time by reference to the market price of Bitcoin traded on Coinbase Pro, the Trust’s

principal market, as determined at 4:00 p.m., New York time on each Business Day (the “Bitcoin Market Price”).

Trust evaluates its principal market selection (or in the absence of a principal market the most advantageous market) at least

annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Bitcoin market’s trading

volume and level of activity in the trailing twelve months, (ii) if any Bitcoin markets have developed that the Trust has access

to, or (iii) if recent changes to a Bitcoin 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 Trust does not

anticipate changing its principal market more frequently than annually, in connection with its annual evaluation of its principal

market selection and annual financial audit.

Each annual evaluation will take into account the findings from the Trust’s

quarterly reviews.

The cost basis of a Trust

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

to the Trust.

The Bitcoin cost basis recorded by the Trust may differ from the value of the proceeds collected by the Sponsor from

the sale of the corresponding Units to investors.

Investment Company Considerations

9 unchanged sentences

could be material.

Review of Financial Results

Financial Highlights for

Year Ended December 31, 2021 and 2020

For the Year Ended December 31,

Review of Financial Results (audited)

Financial Highlights for Year Ended

December 31, 2022 and 2021

Months Ended December 31,

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

$ (82,539,061 )

Net (decrease) increase in net assets resulting from operations

Net realized and

unrealized gain on investment in Bitcoin for the year ended December 31, 2021 was $16,870,167 which includes a realized gain of

$12,335 on the transfer of Bitcoins to pay the Management Fee and other expenses and net change in unrealized appreciation on investment

$ (83,658,388 )

$ 129,673,168

Net realized and unrealized

loss on investment in Bitcoin for the year ended December 31, 2022 was $82,539,061, which includes a realized gain of $834,003

on the transfer of Bitcoins to pay the Management Fee and other expenses and net change in unrealized depreciation on investment

in Bitcoin of $83,373,064.

Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price

appreciation from $29,026.66 per Bitcoin as of December 31, 2020 to $45,867.86 per Bitcoin as of December 31, 2021.

in net assets resulting from operations was $15,939,190 for the year ended December 31, 2021, which consisted of the net realized

and unrealized gain on investment in Bitcoin, less the Management Fee of $605,731 and other expenses of $325,246, net of

Net assets increased to $129,673,168

at December 31, 2021, a 189% increase for the year.

The increase in net assets resulted from the aforementioned Bitcoin price appreciation

and capital contribution of approximately 1,299.49 Bitcoin with a value of $68,827,296 to the Trust in connection with Units issuance

during the period, which was partially offset by the Trust’s Net expenses of $930,977 for the year.

Net realized and

unrealized gain on investment in Bitcoin for year ended December 31, 2020 was $32,062,851 which includes a realized gain of $18,466

on the transfer of Bitcoins to pay the Management Fee and other expenses to the Sponsor and net change in unrealized appreciation

on investment in Bitcoin of $32,044,385.

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

price appreciation from $7,153.37 per Bitcoin as of December 31, 2019 to $29,026.66 per Bitcoin as of the year ended December 31,

Net increase in net assets resulting from operations was $31,893,722 for the year ended December 31, 2020, which consisted

of the net realized and unrealized gain on investment in Bitcoin, less the Management Fee of $132,210 and Other expenses of $36,919.

Net assets increased to $44,906,682 at December 31, 2020, a 357% increase for the year.

The increase in net assets resulted from

the aforementioned Bitcoin price appreciation and the contribution of approximately 187.84 Bitcoin with a value of $3,175,825 to

the Trust in connection with Units issuance during the period, which was partially offset by the Trust’s Net expenses of

$169,129 for the year.

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

from $45,867.86 per Bitcoin as of December 31, 2021 to $16,561.21 per Bitcoin as of December 31, 2022.

Net decrease in net assets

resulting from operations was $83,658,388 for the year ended December 31, 2022, which consisted of the net realized and unrealized

loss on investment in Bitcoin, the Management Fee of $388,890 and other expenses of $730,437.

Net assets decreased to $46,014,780

for the year ended December 31, 2022, a 65% decrease for the year.

The decrease in net assets resulted from the aforementioned

Bitcoin price depreciation, and Trust’s expenses of $1,119,327 for the year.

Risky loan practices, overleveraged

positions, undercollateralized stablecoins, and flat-out fraud plagued the crypto industry in 2022, likely contributing to increased

volatility and price depreciation.

As a result, several crypto companies entered bankruptcy during 2022, shaking investor confidence

in the industry.

2022 saw two major spikes in Bitcoin volatility, one about halfway through the year and the other near year end.

The first peak in volatility occurred on June 24, 2022, when the 30-day annualized price volatility hit 94.53%.

This coincided

with major market events such as Terra’s stablecoin (UST) and native asset (LUNA) losing approximately $18 billion of value

as well as hedge fund, Three Arrows Capital, and crypto-lending companies, Voyager and Celsius, filing for bankruptcy.

volatility peak occurred on November 22, 2022, when the 30-day annualized price volatility reached 80.18%.

This spike in volatility

corresponded with the bankruptcies of the world’s second largest crypto exchange, FTX, and their trading arm, Alameda Research,

along with crypto-lender, BlockFi.

Net realized and unrealized

gain on investment in Bitcoin for the year ended December 31, 2021 was $16,870,167 which includes a realized gain of $12,335 on

the transfer of Bitcoins to pay the Management Fee and other expenses and net change in unrealized appreciation on investment in

Bitcoin of $16,857,832.

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

from $29,026.66 per Bitcoin as of December 31, 2020 to $45,867.86 per Bitcoin as of December 31, 2021.

Net increase in net assets

resulting from operations was $15,939,190 for the year ended December 31, 2021, which consisted of the net realized and unrealized

gain on investment in Bitcoin, less the Management Fee of $605,731 and other expenses of $325,246, net of waivers.

Net assets increased

to $129,673,168 on December 31, 2021, a 189% increase for the year.

The increase in net assets resulted from the aforementioned

Bitcoin price appreciation and capital contribution of approximately 1,299.49 Bitcoin with a value of $68,827,296 to the Trust

in connection with Units issuance during the period, which was partially offset by the Trust’s Net expenses of $930,977 for

Cash Resources and Liquidity

When selling Bitcoins

and/or Additional Currency to pay Extraordinary Expenses, the Sponsor endeavors to sell the exact number of Bitcoins and/or Additional

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.

In exchange for

the Management Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust.

As a result, the only ordinary

expense of the Trust during the periods covered by this Annual Report was the Management Fee.

The Trust is not aware of any trends,

demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs.

selling Bitcoins to pay expenses, the Sponsor endeavours to sell the exact number of Bitcoins 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.

of digital assets, specifically Bitcoin, have experienced substantial volatility, which may reflect “bubble” type volatility,

meaning that high or low prices may have little or no relationship to identifiable market forces, may be subject to rapidly changing

investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation,

and media reporting.

Bitcoin may have value based on various factors, including their acceptance as a means of exchange by consumers

and others, scarcity, and market demand.

exchange for the Management Fee, the Sponsor has agreed to bear the routine operational, administrative and other ordinary fees

and expenses incurred by the Trust.

The Trust is not aware of any trends, demands, conditions or events that are reasonably likely

to result in material changes to its liquidity needs.

Selected Operating Data

For the Year Ended December 31,

Twelve Months December 31,

Opening balance

Management Fee, related party

Custody and Index Fee

Sponsor Fee, related party

Other Expenses

Closing balance

Accrued but unpaid Management Fee, related party

Accrued but unpaid Custody and Index Fee

Accrued but unpaid Sponsor Fee, related party

Unreimbursed expenses due to Sponsor

Accrued but unpaid other expenses, net of other assets

Net closing balance

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Bitcoin Holdings per Unit

Units have been adjusted retroactively to reflect the 4:1 stock split effective January 5, 2021.

Historical Digital Asset Holdings

and Bitcoin Prices

Units have been adjusted retroactively to reflect the 4:1 Unit split effective January 5, 2021.

Historical Digital Asset Holdings and

Bitcoin Prices

movements in the price of Bitcoins will directly affect the price of the Units, investors should understand recent movements in

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from the beginning of the Trust’s operations on January 3, 2019 to December 31, 2022.

The table below

illustrates the movements in the Bitcoin Market Price since the beginning of the Trust’s operations on January 3, 2019.

the beginning of the Trust’s operations to December 31, 2021 the Bitcoin Market Price has ranged from $3,358.67 to $67,371.70,

with the straight average being $22,016.21.

The Sponsor has not observed a material difference between the Bitcoin Market Price

and average prices from the constituent Bitcoin exchanges individually or as a group.

The table below illustrates

the movements in the Bitcoin Market Price since the beginning of the Trust’s operations on January 3, 2019.

Since the beginning

of the Trust’s operations to December 31, 2022 the Bitcoin Market Price has ranged from $3,358.67 to $67,371.70, with the

straight average being $23,558.64.

The Sponsor has not observed a material difference between the Bitcoin Market Price and average

prices from the constituent Bitcoin exchanges individually or as a group.

End of period

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Year ended December 31, 2021

Year ended December 31, 2022

January 3, 2019 (the inception of the Trust’s operations) to December 31, 2022

Secondary Market Trading

Units have been quoted on OTC Markets since February 12, 2021, and on OTCQX under the symbol OBTC since February 26, 2021.

price of the Units as quoted on OTCQX (and OTC Markets) has varied significantly from the NAV per Unit.

The Trust’s Units

have been quoted on OTC Markets since February 12, 2021, and on OTCQX since February 26, 2021 under the symbol “OBTC”.

The price of the Units as quoted on OTCQX (and OTC Markets) has varied significantly from the NAV per Unit.

From February 12, 2021

to December 31, 2022, the maximum premium of the closing price of the Units quoted on OTCQX (and OTC Markets) over the value of

the Trust’s NAV per Unit was approximately 240% and the average daily premium since the Units were first traded on OTC Markets

the Trust’s NAV per Unit was approximately 240% and the average daily discount since the Units were first traded on OTC Markets

on February 12, 2021 was approximately 8%.

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of approximately 40% to the Trust’s NAV per Unit.

The historical premium

of the closing price of the Units quoted on OTCQX and OTC Markets as compared with the NAV per Unit has varied, from a high of

240% on February 16, 2021 (closing price $56.39 per Unit on OTCQX (and OTC Markets) and NAV per Unit $16.58) to a low (i.e., discount)

of -23% on October 19, 2021 (closing price $16.71 per Unit on OTCQX (and OTC Markets) and NAV per Unit $21.79).

The historical

premiums and discounts at times reflect a material deviation from the Bitcoin Market Price.

The following table

sets out the range of high and low closing prices for the Units as reported by OTCQX (or OTC Markets) and the Trust’s NAV

per Unit for the period from February 12, 2021 to December 31, 2021.

The Trust’s Bitcoin Holdings per Unit for the period

The historical premium of

the closing price of the Units quoted on OTCQX and OTC Markets as compared with the NAV per Unit has varied, from a high of 240%

on February 16, 2021 (closing price $56.39 per Unit on OTCQX (and OTC Markets) and NAV per Unit

$16.58) to a low (i.e., discount) of 46% on

November 18, 2022 (closing price $3 per Unit on OTCQX (and OTC Markets) and NAV per Unit $5.56).

The historical premiums and discounts

at times reflect a material deviation from the Bitcoin Market Price.

The following table sets

out the range of high and low closing prices for the Units as reported by OTCQX, the Trust’s NAV per Unit and the Trust’s

Bitcoin Holdings per Unit for the period from February 12, 2021 to December 31, 2022.

Quantitative and Qualitative Disclosures about

Not applicable.

Financial Statements and Supplementary Data

See Index to Financial Statements on

page F-1 for a list of the financial statements filed herein.

Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure

See Index to Financial Statements on page F-1

for a list of the financial statements filed herein.

Changes in and Disagreements with Accountants on

Accounting and Financial Disclosure

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