UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020September 30, 2022
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
000-56121
Grayscale
®
Bitcoin Trust (BTC)SPONSORED BY GRAYSCALE INVESTMENTS, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 46-7019388 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) |
c/o Grayscale Investments, LLC
th
Floor(Address of Principal Executive Offices) (Zip Code)
(212)
668-1427
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Grayscale Bitcoin Trust (BTC) Shares | GBTC | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act.Large accelerated filer | Accelerated filer | ☐ | |||||||
| Non-accelerated filer | Smaller reporting company | ☐ | |||||||
Emerging growth company | |||||||||
If an emerging growth company, indicate by check mark if the registrant has electedelected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐
No
☒
Number of sharesShares of the registrant’s common stockregistrant outstanding as ofMay 1 October 31, 2022: 692,370,100, 2020: 336,251,000.
GRAYSCALE®
TABLE OF CONTENTS
| Page | ||||||||||||
| Statement Regarding Forward-Looking Statements | 1 | |||||||||||
| Industry and Market Data | ||||||||||||
Item 1. | Financial Statements (Unaudited) | |||||||||||
| 2 | ||||||||||||
| Statements of Assets and Liabilities at | ||||||||||||
| 2 | ||||||||||||
| Schedules of Investment at | ||||||||||||
| 3 | ||||||||||||
| Statements of Operations for the Three and Nine Months Ended | ||||||||||||
| 4 | ||||||||||||
| Statements of Changes in Net Assets for the Three and Nine Months Ended | ||||||||||||
| 5 | ||||||||||||
| Notes to the Unaudited Financial Statements | ||||||||||||
Item 2. | ||||||||||||
Item 3. | ||||||||||||
20 | ||||||||||||
Item 4. | Controls and Procedures | 20 | ||||||||||
Item 1. | Legal Proceedings | 22 | ||||||||||
Item | ||||||||||||
Item 2. | ||||||||||||
Item 3. | ||||||||||||
Item 4. | Mine Safety Disclosures | 22 | ||||||||||
Item 5. | Other Information | 22 | ||||||||||
Item | ||||||||||||
| 25 | ||||||||||||
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains “forward-looking statements” with respect to the financial conditions, results of operations, plans, objectives, future performance and business of Grayscale Bitcoin Trust (BTC) (the “Trust”). Statements preceded by, followed by or that include words such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other similar expressions are intended to identify some of the forward-looking statements. All statements (other than statements of historical fact) included in this Quarterly Report that address activities, events or developments that will or may occur in the future, including such matters as changes in market prices and conditions, the Trust’s operations, the plans of Grayscale Investments, LLC (the “Sponsor”) and references to the Trust’s future success and other similar matters are forward-looking statements. These statements are only predictions. Actual events or results may differ materially from such statements. These statements are based upon certain assumptions and analyses the Sponsor made based on its perception of historical trends, current conditions and expected future developments, as well as other factors appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including, but not limited to, those described in Unless otherwise stated or the context otherwise requires, the terms “we,” “our” and Market Data
“us” in this Quarterly Report refer to the Sponsor acting on behalf of the Trust.“Statement Regarding Forward-Looking“Forward-Looking Statements” and “ItemPart I, Item 1A. Risk Factors”Factors in the Annual Report on Form2019,2021, filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2020February 25, 2022 (the “Annual Report”).
A glossary of industry and other defined terms is included in this Quarterly Report, beginning on page 25.
This Quarterly Report supplements and where applicable amends the Memorandum, as defined in the Trust’s Fifth Amended and Restated Declaration of Trust and Trust Agreement, for general purposes.
INDUSTRY AND MARKET DATA
Although we are responsible for all disclosure contained in this Quarterly Report on Form
10-Q,
in some cases we have relied on certain market and industry data obtained from third-party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications in conjunction with our assumptions regarding the Bitcoin industry and market. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings 10-K
for the year ended December 31, 1
PART I – FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited) |
GRAYSCALE BITCOIN TRUST (BTC)
STATEMENTS OF ASSETS AND LIABILITIES
(UNAUDITED)(Amounts in U.S. dollars, except Share amounts) | March 31, 2020 | December 31, 2019 | ||||||
Assets: | ||||||||
Investment in Bitcoin, at fair value (cost $1,223,309,388 and $839,093,484 as of March 31, 2020 and December 31, 2019, respectively) | $ | 1,972,244,030 | $ | 1,866,217,842 | ||||
Total assets | $ | 1,972,244,030 | $ | 1,866,217,842 | ||||
Liabilities: | ||||||||
Sponsor’s Fee payable, related party | $ | — | $ | — | ||||
Total liabilities | — | — | ||||||
Net assets | $ | 1,972,244,030 | $ | 1,866,217,842 | ||||
Net Assets consists of: | ||||||||
Paid-in-capital | 1,250,883,025 | 861,353,899 | ||||||
Accumulated net investment loss | (92,628,558 | ) | (80,835,170 | ) | ||||
Accumulated net realized gain on investment in Bitcoin | 65,054,921 | 58,574,755 | ||||||
Accumulated net change in unrealized appreciation on investment in Bitcoin | 748,934,642 | 1,027,124,358 | ||||||
| $ | 1,972,244,030 | $ | 1,866,217,842 | |||||
Shares issued and outstanding, no par value (unlimited Shares authorized) | 315,828,000 | 269,445,300 | ||||||
Net asset value per Share | $ | 6.24 | $ | 6.93 | ||||
September 30, 2022 | December 31, 2021 | |||||||
Assets: | ||||||||
| Investment in Bitcoin, at fair value (cost $7,194,841 and $7,303,280 as of September 30, 2022 and December 31, 2021, respectively) | $ | 12,374,718 | $ | 29,576,053 | ||||
Total assets | $ | 12,374,718 | $ | 29,576,053 | ||||
Liabilities: | ||||||||
| Sponsor’s Fee payable, related party | $ | — | $ | — | ||||
Total liabilities | — | — | ||||||
Net Assets | $ | 12,374,718 | $ | 29,576,053 | ||||
Net Assets consist of: | ||||||||
Paid-in-capital | $ | 7,513,961 | $ | 7,513,961 | ||||
| Accumulated net investment loss | (1,092,705 | ) | (789,760 | ) | ||||
| Accumulated net realized gain on investment in Bitcoin | 773,585 | 579,079 | ||||||
| Accumulated net change in unrealized appreciation on investment in Bitcoin | 5,179,877 | 22,272,773 | ||||||
| $ | 12,374,718 | $ | 29,576,053 | |||||
| Shares issued and outstanding, no par value (unlimited Shares authorized) | 692,370,100 | 692,370,100 | ||||||
| Net asset value per Share | $ | 17 .87 | $ | 42 .72 | ||||
See accompanying notes to the unaudited financial statementsstatements.
2
GRAYSCALE BITCOIN TRUST (BTC)
SCHEDULES OF INVESTMENT
(UNAUDITED)March 31, 2020 | ||||||||||||||||
Number of Bitcoin | Cost | Fair Value | % of Net Assets | |||||||||||||
Investment in Bitcoin | 304,631.31046282 | $ | 1,223,309,388 | $ | 1,972,244,030 | 100 | % | |||||||||
Net assets | $ | 1,223,309,388 | $ | 1,972,244,030 | 100 | % | ||||||||||
December 31, 2019 | ||||||||||||||||
Number of Bitcoin | Cost | Fair Value | % of Net Assets | |||||||||||||
Investment in Bitcoin | 261,192.14022299 | $ | 839,093,484 | $ | 1,866,217,842 | 100 | % | |||||||||
Net assets | $ | 839,093,484 | $ | 1,866,217,842 | 100 | % | ||||||||||
September 30, 2022 | Quantity of Bitcoin | Cost | Fair Value | % of Net Assets | ||||||||||||
| Investment in Bitcoin | 635,235.84358745 | $ | 7,194,841 | $ | 12,374,718 | 100 | % | |||||||||
Net Assets | $ | 7,194,841 | $ | 12,374,718 | 100 | % | ||||||||||
December 31, 2021 | Quantity of Bitcoin | Cost | Fair Value | % of Net Assets | ||||||||||||
| Investment in Bitcoin | 644,809.96863835 | $ | 7,303,280 | $ | 29,576,053 | 100 | % | |||||||||
Net Assets | $ | 7,303,280 | $ | 29,576,053 | 100 | % | ||||||||||
See accompanying notes to the unaudited financial statementsstatements.
3
GRAYSCALE BITCOIN TRUST (BTC)
STATEMENTS OF OPERATIONS
(UNAUDITED)Three Months Ended March 31, | ||||||||
(Amounts in U.S. dollars) | 2020 | 2019 | ||||||
Investment income: | ||||||||
Investment income | $ | — | $ | — | ||||
Expenses: | ||||||||
Sponsor’s Fee, related party | 11,793,388 | 3,862,438 | ||||||
Net investment loss | (11,793,388 | ) | (3,862,438 | ) | ||||
Net realized and unrealized (loss) gain from: | ||||||||
Net realized gain on investment in Bitcoin | 6,480,166 | 1,844,077 | ||||||
Net change in unrealized (depreciation) appreciation on investment in Bitcoin | (278,189,716 | ) | 86,536,075 | |||||
Net realized and unrealized (loss) gain on investment | (271,709,550 | ) | 88,380,152 | |||||
Net (decrease) increase in net assets resulting from operations | $ | (283,502,938 | ) | $ | 84,517,714 | |||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Investment income: | ||||||||||||||||
| Investment income | $ | — | $ | — | $ | — | $ | — | ||||||||
Expenses: | ||||||||||||||||
| Sponsor’s Fee, related party | 68,252 | 137,296 | 302,945 | 433,070 | ||||||||||||
Net investment loss | (68,252 | ) | (137,296 | ) | (302,945 | ) | (433,070 | ) | ||||||||
Net realized and unrealized gain (loss) from: | ||||||||||||||||
| Net realized gain on investment in Bitcoin | 31,890 | 100,200 | 194,506 | 324,729 | ||||||||||||
| Net change in unrealized appreciation (depreciation) on investment in Bitcoin | 347,631 | 5,603,133 | (17,092,896 | ) | 8,696,528 | |||||||||||
Net realized and unrealized gain (loss) on investment | 379,521 | 5,703,333 | (16,898,390 | ) | 9,021,257 | |||||||||||
Net increase (decrease) in net assets resulting from operations | $ | 311,269 | $ | 5,566,037 | $ | (17,201,335 | ) | $ | 8,588,187 | |||||||
See accompanying notes to the unaudited financial statementsstatements.
4
GRAYSCALE BITCOIN TRUST (BTC)
Three Months Ended March 31, | ||||||||
(Amounts in U.S. dollars, except change in Shares outstanding) | 2020 | 2019 | ||||||
(Decrease) increase in net assets from operations: | ||||||||
Net investment loss | $ | (11,793,388 | ) | $ | (3,862,438 | ) | ||
Net realized gain on investment in Bitcoin | 6,480,166 | 1,844,077 | ||||||
Net change in unrealized (depreciation) appreciation on investment in Bitcoin | (278,189,716 | ) | 86,536,075 | |||||
Net (decrease) increase in net assets resulting from operations | (283,502,938 | ) | 84,517,714 | |||||
Increase in net assets from capital share transactions: | ||||||||
Shares issued | 389,529,126 | 41,832,368 | ||||||
Net increase in net assets resulting from capital share transactions | 389,529,126 | 41,832,368 | ||||||
Total increase in net assets from operations and capital share transactions | 106,026,188 | 126,350,082 | ||||||
Net assets: | ||||||||
Beginning of period | 1,866,217,842 | 751,622,174 | ||||||
End of period | $ | 1,972,244,030 | $ | 877,972,256 | ||||
Change in Shares outstanding: | ||||||||
Shares outstanding at beginning of period | 269,445,300 | 206,559,100 | ||||||
Shares issued | 46,382,700 | 11,309,100 | ||||||
Net increase in Shares | 46,382,700 | 11,309,100 | ||||||
Shares outstanding at end of period | 315,828,000 | 217,868,200 | ||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Increase (decrease) in net assets from operations: | ||||||||||||||||
| Net investment loss | $ | (68,252 | ) | $ | (137,296 | ) | $ | (302,945 | ) | $ | (433,070 | ) | ||||
| Net realized gain on investment in Bitcoin | 31,890 | 100,200 | 194,506 | 324,729 | ||||||||||||
| Net change in unrealized appreciation (depreciation) on investment in Bitcoin | 347,631 | 5,603,133 | (17,092,896 | ) | 8,696,528 | |||||||||||
| Net increase (decrease) in net assets resulting from operations | 311,269 | 5,566,037 | (17,201,335 | ) | 8,588,187 | |||||||||||
Increase in net assets from capital share transactions: | ||||||||||||||||
| Shares issued | — | — | — | 1,905,227 | ||||||||||||
| Net increase in net assets resulting from capital share transactions | — | – | — | 1,905,227 | ||||||||||||
| Total increase (decrease) in net assets from operations and capital share transactions | 311,269 | 5,566,037 | (17,201,335 | ) | 10,493,414 | |||||||||||
Net assets: | ||||||||||||||||
| Beginning of period | 12,063,449 | 22,643,855 | 29,576,053 | 17,716,478 | ||||||||||||
| End of period | $ | 12,374,718 | $ | 28,209,892 | $ | 12,374,718 | $ | 28,209,892 | ||||||||
Changes in Shares outstanding | ||||||||||||||||
| Shares outstanding at beginning of period | 692,370,100 | 692,370,100 | 692,370,100 | 638,906,600 | ||||||||||||
| Shares issued | — | — | — | 53,463,500 | ||||||||||||
| Net increase in Shares | — | — | — | 53,463,500 | ||||||||||||
| Shares outstanding at end of period | 692,370,100 | 692,370,100 | 692,370,100 | 692,370,100 | ||||||||||||
See accompanying notes to the unaudited financial statementsstatements.
5
GRAYSCALE BITCOIN TRUST (BTC)
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Organization
Grayscale Bitcoin Trust (BTC) (the “Trust”) is a Delaware Statutory Trust that was formed on September 13, 2013 and commenced operations on September 25, 2013. In general, the Trust holds Bitcoin (“BTC”) and, from time to time, issues common units of fractional undivided beneficial interest (“Shares”) (in minimum baskets of 100 Shares, referred to as “Baskets”) in exchange for Bitcoin. The redemption of Shares is not currently contemplated and the Trust does not currently operate a redemption program. Subject to receipt of regulatory approval and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust currently has no intentionnot sought such relief as of seeking regulatory approval to operate an ongoing redemption program.the date of this Quarterly Report. The Trust’s investment objective of the Trust is for the value of the Shares (based on Bitcoin per Share) to reflect the value of Bitcoin held by the Trust, less the Trust’s expenses and other liabilities. The Trust may also receive Incidental Rights and/or IR Virtual Currency as a result of the Trust’s investment in Bitcoin, in accordance with the terms of the Trust Agreement.
Incidental Rights are rights to claim, or otherwise establish dominion and control over, any virtual currency or other asset or right, which rights are incident to the Trust’s ownership of Bitcoin and arise without any action of the Trust, or of the Sponsor or Trustee on behalf of the Trust; IR Virtual Currency is any virtual currency tokens, or other asset or right, received by the Trust through the exercise (subject to the applicable provisions of the Trust Agreement) of any Incidental Right.
Grayscale Investments, LLC (“Grayscale” or the “Sponsor”) acts as the Sponsor of the Trust and is a wholly owned subsidiary of Digital Currency Group, Inc. (“DCG”). The Sponsor is responsible for theadministration of the Trust pursuant to the provisions of the Trust Agreement. Grayscale is responsible for preparing and providing annual and quarterly reports on behalf of the Trust to investors and is also responsible for selecting and monitoring the Trust’s service providers. As partial consideration for the Sponsor’s services, the Trust pays Grayscale a Sponsor’s Fee as discussed in Note 6. The Sponsor also acts as the sponsor and manager of other investment products including Grayscale Basic Attention Token Trust (BAT) (OTCQB: GBAT), Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Chainlink Trust (LINK) (OTCQB: GLNK), Grayscale Decentraland Trust (MANA) (OTCQX: MANA), Grayscale Ethereum Trust (ETH) (OTCQX: ETHE), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), Grayscale Filecoin Trust (FIL) (OTCQB: FILG), Grayscale Horizen Trust (ZEN) (OTCQX: HZEN), Grayscale Litecoin Trust (LTC) (OTCQX: LTCN), Grayscale Livepeer Trust (LPT) (OTCQB: GLIV), Grayscale Solana Trust (SOL), Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM), Grayscale Zcash Trust (ZEC) (OTCQX: ZCSH), Grayscale Decentralized Finance (DeFi) Fund LLC, Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), and Grayscale Smart Contract Platform Ex Ethereum (ETH) Fund LLC, each of which is an affiliate of the Trust. The following investment products sponsored or managed by the Sponsor are also SEC reporting companies with their shares registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): Grayscale Bitcoin Cash Trust (BCH), Grayscale Ethereum Trust (ETH), Grayscale Ethereum Classic Trust (ETC), Grayscale Horizen Trust (ZEN), Grayscale Litecoin Trust (LTC), Grayscale Stellar Lumens Trust (XLM), Grayscale XRP Trust (XRP), Grayscale Zcash Trust (ZEC), and Grayscale Digital Large Cap Fund LLC. Grayscale Advisors, LLC, (OTCQX: GDLC), each of which isa Registered Investment Advisor and an affiliate of the Trust.Sponsor, is the advisor to the Grayscale Future of Finance (NYSE: GFOF) product.
day-to-day
Authorized Participants of the Trust are the only entities who may place orders to create or, if permitted, redeem Baskets. Genesis Global Trading, Inc. (“Genesis” or, thein such capacity, an “Authorized Participant”), a registered broker-dealer and wholly owned subsidiary of DCG, iswas the only Authorized Participant as of September 30, 2022, and iswas party to a participant agreement with the Sponsor and the Trust. Additional Authorized Participants may be added at any time, subject to the discretion of the Sponsor. Effective October 3, 2022, Grayscale Securities, LLC (“Grayscale Securities” or, in such capacity, an “Authorized Participant”), a registered broker-dealer and wholly owned subsidiary of the Sponsor, is the only Authorized Participant, and is party to a participant agreement with the Sponsor and the Trust. See Note 10 for additional information.
The custodian of the Trust
is Coinbase Custody Trust Company, LLC
is responsible for safeguarding the Bitcoin, Incidental Rights, and IR Virtual Currency held by the Trust,
The transfer agent for the Trust (the “Transfer Agent”) is Continental Stock Transfer & Trust Company. The responsibilities of the Transfer Agent are to maintain creations, redemptions, transfers, and distributions of the Trust’s Shares which are primarily held in book-entry form.
The administrator for the Trust (the “Administrator”) is BNY Mellon Asset Servicing, a division of The Bank of New York Mellon. BNY Mellon Asset Servicing provides administration and accounting services to the Trust. The Administrator’s fees are paid on behalf of the Trust by the Sponsor.
On March 25, 2015, the Trust received notice that its Shares were qualified for public trading on the OTCQX U.S. Marketplace of the OTC Markets Group Inc. (“OTCQX”). The Trust’s trading symbol on OTCQX is “GBTC” and the CUSIP number for its Shares is 389637109.
6
2. Summary of Significant Accounting Policies
In the opinion of management of the Sponsor of the Trust, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2020September 30, 2022 and December 31, 20192021 and results of operations for the three and nine months ended March 31, 2020September 30, 2022 and 20192021 have been made. The results of operations for the periods presented are not necessarily indicative of the results of operations expected for the full year. These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 20192021 included in the Company’sTrust’s Annual Report on Form
10-K.
The following is a summary of significant accounting policies followed by the Trust:
The financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Trust qualifies as an investment company for accounting purposes pursuant to the accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946,
Financial Services –
Investment Companies
The Trust conducts its transactions in Bitcoin, including receiving Bitcoin for the creation of Shares and delivering Bitcoin for the redemption of Shares and for the payment of the Sponsor’s Fee. At this time, the Trust is not accepting redemption requests from Shareholders.shareholders. Since its inception, the Trust has not held cash or cash equivalents.
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 net asset value (“NAV”), the Trust follows ASC
820-10,
which outlines the application of fair value accounting. ASC820-10
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. ASC820-10
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 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 the Authorized Participant when assessing entity specificentity-specific and market-based volume and level of activity for Digital Asset Markets. TheDuring the three months ended September 30, 2022, the Authorized Participant transactsmay transact in a Brokered Market, a Dealer Market,Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary (collectively, “Digital Asset Markets”). The Authorized Participant, as a related party of the Sponsor, provides information about the Digital Asset Markets on which it transacts to the Trust.
Principal-to-Principal
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 areTheNeither the Trust ornor the Authorized Participant does not havehas access to Digital Asset Exchange Markets that do not have a BitLicense and hashave access only to
non-accessible
to the Trust and the Authorized Participant. 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.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 andMarkets to determine its principal market. As a result of the analysis, an Exchange Market has been selected as the Trust’s principal market.
Principal-to-Principal
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.
7
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 the Authorized Participant from the sale of the corresponding Shares to investors.
Investment Transactions and Revenue Recognition
The Trust considers investment transactions to be the receipt of Bitcoin for Share creations and the delivery of Bitcoin for Share redemptions or for payment of expenses in Bitcoin. At this time, the Trust is not accepting redemption requests from Shareholders.
shareholders. 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. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor’s Fee in Bitcoin.
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the ‘exit price’) in an orderly transaction between market participants at the measurement date.
GAAP utilizes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Trust. Unobservable inputs reflect the Trust’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, these valuations do not entail a significant degree of judgment.
Level 2 – Valuations based on quoted prices in markets that are not active or for which significant inputs are observable, either directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary by investment. To the extent that valuations are based on sources that are less observable or unobservable in the market, the determination of fair value requires more judgment. Fair value estimates do not necessarily represent the amounts that may be ultimately realized by the Trust.
Amount at Fair Value | Fair Value Measurement Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
March 31, 2020 | ||||||||||||||||
Assets | ||||||||||||||||
Investment in Bitcoin | $ | 1,972,244,030 | $ | — | $ | 1,972,244,030 | $ | — | ||||||||
December 31, 2019 | ||||||||||||||||
Assets | ||||||||||||||||
Investment in Bitcoin | $ | 1,866,217,842 | $ | — | $ | 1,866,217,842 | $ | — | ||||||||
Fair Value Measurement Using | ||||||||||||||||
| (Amounts in thousands) | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
September 30, 2022 | ||||||||||||||||
Assets | ||||||||||||||||
| Investment in Bitcoin | $ | 12,374,718 | $ | 12,374,718 | $ | — | $ | — | ||||||||
Fair Value Measurement Using | ||||||||||||||||
| (Amounts in thousands) | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
December 31, 2021 | ||||||||||||||||
Assets | ||||||||||||||||
| Investment in Bitcoin | $ | 29,576,053 | $ | — | $ | 29,576,053 | $ | — | ||||||||
3. Fair Value of Bitcoin
Bitcoin is held by the Custodian on behalf of the Trust and is carried at fair value. As of March 31, 2020,September 30, 2022 and December 31, 2019,2021 the Trust held 304,631.31046282635,235.84358745 and 261,192.14022299644,809.96863835 Bitcoin, respectively.
The Trust determined the fair value per Bitcoin to be $6,474.20$19,480.51 and $7,145.00$45,867.86 on March 31, 2020September 30, 2022 and December 31, 2019,2021, respectively, using the price provided at 4:00 p.m., New York time, by the Digital Asset Exchange Market considered to be the Trust’s principal market (Coinbase Pro).
8
The following represents the changes in quantity of Bitcoin and the respective fair value:
Bitcoin | Fair Value | |||||||
Balance at January 1, 2019 | 204,277.35165345 | $ | 751,622,174 | |||||
Bitcoin contributed | 61,555.82798061 | 462,775,143 | ||||||
Bitcoin distributed for Sponsor’s Fee, related party | (4,641.03941107 | ) | (34,730,355 | ) | ||||
Net change in unrealized appreciation on investment in Bitcoin | — | 663,245,720 | ||||||
Net realized gain on investment in Bitcoin | — | 23,305,160 | ||||||
Balance at December 31, 2019 | 261,192.14022299 | 1,866,217,842 | ||||||
Bitcoin contributed | 44,867.71207927 | 389,529,126 | ||||||
Bitcoin distributed for Sponsor’s Fee, related party | (1,428.54183944 | ) | (11,793,388 | ) | ||||
Net change in unrealized depreciation on investment in Bitcoin | — | (278,189,716 | ) | |||||
Net realized gain on investment in Bitcoin | — | 6,480,166 | ||||||
Balance at March 31, 2020 | 304,631.31046282 | $ | 1,972,244,030 | |||||
| (Amounts in thousands, except Bitcoin amounts) | Bitcoin | Fair Value | ||||||
Beginning balance as of January 1, 2021 | 607,039.48515191 | $ | 17,716,478 | |||||
| Bitcoin contributed | 50,738.88950472 | 1,905,227 | ||||||
| Bitcoin distributed for Sponsor’s Fee, related party | (12,968.40601828 | ) | (615,420 | ) | ||||
| Net change in unrealized appreciation on investment in Bitcoin | — | 10,099,600 | ||||||
| Net realized gain on investment in Bitcoin | — | 470,168 | ||||||
Ending balance as of December 31, 2021 | 644,809.96863835 | $ | 29,576,053 | |||||
| (Amounts in thousands, except Bitcoin amounts) | Bitcoin | Fair Value | ||||||
Beginning balance as of January 1, 2022 | 644,809.96863835 | $ | 29,576,053 | |||||
| Bitcoin contributed | — | — | ||||||
| Bitcoin distributed for Sponsor’s Fee, related party | (9,574.12505090 | ) | (302,945 | ) | ||||
| Net change in unrealized depreciation on investment in Bitcoin | — | (17,092,896 | ) | |||||
| Net realized gain on investment in Bitcoin | — | 194,506 | ||||||
Ending balance as of September 30, 2022 | 635,235.84358745 | $ | 12,374,718 | |||||
4
Creations and Redemptions of Shares
At March 31, 2020September 30, 2022 and December 31, 2019,2021, there were an unlimited number of Shares authorized by the Trust. The Trust creates (and, should the Trust commence a redemption program, redeems) Shares from time to time, but only in one or more Baskets. The creation and redemption of Baskets on behalf of investors are made by the Authorized Participant in exchange for the delivery of Bitcoin to the Trust or the distribution of Bitcoin by the Trust. The number of Bitcoin required for each creation Basket or redemption Basket is determined by dividing (x) the number of Bitcoin owned by the Trust at 4:00 p.m., New York time, on such trade date of a creation or redemption order, after deducting the number of
Bitcoin
representing the U.S. dollar value of accrued but unpaid fees and expenses of the Trust, by (y) the number of Shares outstanding at such time and multiplying the quotient obtained by 100. Each Share represented approximately 0.00100.0009 of one Bitcoin at March 31, 2020both September 30, 2022 and December 31, 2019.2021. The decrease in the number of Bitcoin represented by each Share is primarily a result of the periodic withdrawal of Bitcoin to pay the Sponsor’s Fee.
The cost basis of investments in Bitcoin recorded by the Trust is the fair value of Bitcoin, as determined by the Trust, at 4:00 p.m., New York time, on the date of transfer to the Trust by the Authorized Participant based on the creation Baskets. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of each Share to investors. The Authorized Participant may realize significant profits buying, selling, creating, and, if permitted, redeeming Shares as a result of changes in the value of Shares or Bitcoin.
Effective October 28, 2014, the Trust suspended its redemption program, in which Shareholdersshareholders were permitted to request the redemption of their Shares through Genesis, the sole Authorized Participant at the time out of concern that the redemption program was in violation of Regulation M under the Exchange Act, resulting in a settlement reached with the Securities Exchange Commission (“SEC”). At this time, the Trust is not operating a redemption program and is not accepting redemption requests. Subject to receipt of regulatory approval and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. TheOn October 19, 2021, NYSE Arca, Inc. (“NYSE Arca”) filed an application with the SEC pursuant to Rulecurrently has no intentionon NYSE Arca. On June 29, 2022, the SEC denied NYSE Arca’sseeking regulatoryAppeals for the District of Columbia for review of the SEC’s June 29, 2022 final order denying approval to operate an ongoing redemption program.
19b-4
under the Exchange Act to list the Shares of the Trust 19b-4
application and the Sponsor subsequently petitioned the United States Court of 5. Income Taxes
As of January 1, 2016, an amendment to the Trust Agreement was made to ensure that the Trust Agreement was consistent with the treatment of the Trust as a grantor trust. On February 9, 2017, the Court of Chancery of the State of Delaware ordered that the Original Trust Agreement be reformed so that the amendments made are retroactive to the original date of execution of the Trust Agreement. On September 11, 2017, the Trust received a private letter ruling from the IRS in which the IRS concluded, based on the facts at that time, that the Trust qualified as a grantor trust for U.S. federal income tax purposes as of the date of the private letter ruling.
Furthermore, as of October 24, 2017, amendments to the Trust Agreement were made to permit the Trust to hold rights to acquire, or otherwise establish, dominion and control over, Incidental Rights and IR Virtual Currency in a manner consistent with the Trust’s continued treatment as a grantor trust for U.S. federal income tax purposes.
Accordingly, the Sponsor takes the position that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.S. federal income tax. Rather, if the Trust is a grantor trust, each beneficial owner of Shares will be treated as directly owning its pro rata Share of the Trust’s assets and a pro rata portion of the Trust’s income, gain, losses and deductions will “flow through” to each beneficial owner of Shares.
9
If the Trust were not properly classified as a grantor trust, the Trust might be classified as a partnership for U.S. federal income tax purposes. However, due to the uncertain treatment of digital currencies,assets, including forks, airdrops and similar occurrences for U.S. federal income tax purposes, there can be no assurance in this regard. If the Trust were classified as a partnership for U.S. federal income tax purposes, the tax consequences of owning Shares generally would not be materially different from the tax consequences described herein, although there might be certain differences, including with respect to timing. In addition, tax information reports provided to beneficial owners of Shares would be made in a different form. If the Trust were not classified as either a grantor trust or a partnership for U.S. federal income tax purposes, it would be classified as a corporation for such purposes. In that event, the Trust would be subject to entity-level U.S. federal income tax (currently at a maximumthe rate of 21%) on its net taxable income and certain distributions made by the Trust to Shareholdersshareholders would be treated as taxable dividends to the extent of the Trust’s current and accumulated earnings and profits.
In accordance with GAAP, the Trust has defined the threshold for recognizing the benefits of tax return positions in the financial statements asMarch 31, 2020September 30, 2022 and December 31, 2019,2021, the Trust did not have a liability for any unrecognized tax amounts. However, the Sponsor’s conclusions concerning its determination of
“more-likely-than-not”
to be sustained by the applicable taxing authority and requires measurement of a tax position meeting the“more-likely-than-not”
threshold, based on the largest benefit that is more than 50% likely to be realized. Tax positions not deemed to meet the“more-likely-than-not”
threshold are recorded as a tax benefit or expense in the current period. As of, and during the periods ended “more-likely-than-not”
tax positions may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance, andon-going
analyses of and changes to tax laws, regulations and interpretations thereof.The Sponsor of the Trust has evaluated whether or not there are uncertain tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions related to federal, state and local income taxes existed as of March 31, 2020September 30, 2022 or December 31, 2019.2021.
6. Related Parties
The Trust considers the following entities, their directors, and employees to be related parties of the Trust: DCG, Genesis, Grayscale and Grayscale.CoinDesk Indices, Inc. As of March 31, 2020September 30, 2022 and December 31, 2019, 11,213,3922021, 66,972,899 and 12,617,86925,327,433 Shares of the Trust were held by related parties of the Trust, respectively.
The Sponsor’s parent, an affiliate of the Trust, holds a minority interest in Coinbase, Inc., the parent company of the Custodian, that represents less than 1.0% of Coinbase Inc.’s ownership.
In accordance with the Trust Agreement governing the Trust, the Trust pays a fee to the Sponsor, calculated as 2.0% of the aggregate value of the Trust’s assets, less its liabilities (which include any accrued but unpaid expenses up to, but excluding, the date of calculation), as calculated and published by the Sponsor or its delegates in the manner set forth in the Trust Agreement (the “Sponsor’s Fee”). The Sponsor’s Fee accrues daily in U.S. dollars and is payable in Bitcoin, monthly in arrears. The amount of Bitcoin payable in respect of each daily U.S. dollar accrual will be determined by reference to the same U.S. dollar value of Bitcoin used to determine such accrual. For purposes of these financial statements, the U.S. dollar value of Bitcoin is determined by reference to the Digital Asset Exchange Market that the Trust considers its principal market as of 4:00 p.m., New York time, on each valuation date. The Trust held no Incidental Rights or IR Virtual Currency as of September 30, 2022 and December 31, 2021. No Incidental Rights or IR Virtual Currencies have been distributed in payment of the Sponsor’s Fee during the three and nine months ended September 30, 2022 and 2021.
As partial consideration for receipt of the Sponsor’s Fee, the Sponsor is obligated under the Trust Agreement to assume and pay all fees and other expenses incurred by the Trust in the ordinary course of its affairs, excluding taxes, but including marketing fees; administrator fees, if any; custodian fees; transfer agent fees; trustee fees; the fees and expenses related to the listing, quotation or trading of the Shares on any secondary market (including customary legal, marketing and audit fees and expenses) in an amount up to $600,000 in any given fiscal year; ordinary course legal fees and expenses; audit fees; regulatory fees, including, if applicable, any fees relating to the registration of the Shares under the Securities Act or the Exchange Act; printing and mailing costs; the costs of maintaining the Trust’s website and applicable license fees (the “Sponsor-paid Expenses”), provided that any expense that qualifies as an Additional Trust Expense will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense.
The Trust may incur certain extraordinary,Shareholdersshareholders (including in connection with any Incidental Rights and any IR Virtual Currency), any indemnification of the Custodian or other agents, service providers or counterparties of the Trust, the fees and expenses related to the listing, quotation or trading of the Shares on any secondary market (including legal, marketing and audit fees and expenses) to the extent exceeding $600,000 in any given fiscal year and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters (collectively “Additional Trust Expenses”). In such circumstances, the Sponsor or its delegate (i) will instruct the Custodian to withdraw from the Bitcoin accountDigital Asset Account Bitcoins, Incidental Rights and/or IR Virtual Currency in such quantity as may be necessary to permit payment of such Additional Trust Expenses and (ii) may either (x) cause the Trust (or its delegate) to convert such Bitcoins, Incidental Rights and/or IR Virtual Currency into U.S. dollars or other fiat currencies at the Actual Exchange Rate or (y) when the Sponsor incurs such expenses on behalf of the Trust, cause the Trust (or its delegate) to deliver such Bitcoins, Incidental Rights and/or IR Virtual Currency in kind to the Sponsor in satisfaction of such Additional Trust Expenses.
non-recurring
expenses that are not Sponsor-paid Expenses, including, but not limited to, taxes and governmental charges, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of 10
For the three months ended March 31, 2020September 30, 2022 and 2019,September 30, 2021 the Trust incurred Sponsor’s Fees of $11,793,388$68,251,452 and $3,862,438,$137,296,546, respectively. For the nine months ended September 30, 2022 and 2021, the Trust incurred Sponsor’s Fees of $302,944,593 and $433,069,989, respectively. As of March 31, 2020September 30, 2022 and December 31, 2019,2021, there were 0no accrued and unpaid Sponsor’s Fees. In addition, the Sponsor may pay Additional Trust Expenses on behalf of the Trust, which are reimbursable by the Trust to the Sponsor. For the three and nine months ended March 31, 2020September 30, 2022 and 2019,2021 the Sponsor did not pay any Additional Trust Expenses on behalf of the Trust.
On March 10, 2021, the Board of the Sponsor (the “Board”) approved the purchase by DCG, the parent company of the Sponsor, of up to $250 million worth of Shares of the Trust. Subsequently, DCG authorized such purchase. On April 30, 2021, the Board approved the purchase by DCG of up to $750 million worth of Shares of the Trust. This increased DCG’s prior authorization to purchase up to $250 million worth of Shares by $500 million. On October 20, 2021, the Board of the Sponsor approved the purchase by DCG, the parent company of the Sponsor, of up to $1 billion worth of Shares of the Trust. Subsequently, DCG authorized such purchase. This increased DCG’s prior authorization to purchase up to $750 million worth of Shares by $250 million. On March 2, 2022, the Board approved the purchase by DCG of up to an aggregate total of $200 million worth of Shares of the Trust and shares of any of the following five investment products the Sponsor also acts as the sponsor and manager of, including Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), Grayscale Ethereum Trust (ETH) (OTCQX: ETHE), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), and Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM). This increased DCG’s prior authorization to purchase up to $1 billion worth of Shares by up to a maximum of $200 million. The Share purchase authorization does not obligate DCG to acquire any specific number of Shares in any period, and may be expanded, extended, modified, or discontinued at any time. From March 10, 2021 through September 30, 2022, DCG has purchased a total of $771.8 million worth of Shares of the Trust.
7. Risks and Uncertainties
The Trust is subject to various risks including market risk, liquidity risk, and other risks related to its concentration in a single asset, Bitcoin. Investing in Bitcoin is currently highly speculative and volatile.
The net asset value of the Trust relates primarily to the value of Bitcoin held by the Trust, and fluctuations in the price of Bitcoin could materially and adversely affect an investment in the Shares of the Trust. The price of Bitcoin has a limited history. During such history, Bitcoin prices have been volatile and subject to influence by many factors, including the levels of liquidity. If Digital Asset Markets continue to experience significant price fluctuations, the Trust may experience losses. Several factors may affect the price of Bitcoin, including, but not limited to, global Bitcoin supply and demand, theft of Bitcoin from global exchanges or vaults, competition from other forms of digital currency or payment services, global or regional political, economic or financial conditions, and other unforeseen events and situations such as the novel coronavirus outbreak.situations.
The Bitcoin held by the Trust are commingled and the Trust’s Shareholdersshareholders have no specific rights to any specific Bitcoin. In the event of the insolvency of the Trust, its assets may be inadequate to satisfy a claim by its Shareholders.shareholders.
There is currently no clearing house for Bitcoin, nor is there a central or major depository for the custody of Bitcoin. There is a risk that some or all of the Trust’s Bitcoin could be lost or stolen. There can be no assurance that the Custodian will maintain adequate insurance or that such coverage will cover losses with respect to the Trust’s Bitcoin. Further, transactions in Bitcoin are irrevocable. Stolen or incorrectly transferred Bitcoin may be irretrievable. As a result, any incorrectly executed Bitcoin transactions could adversely affect an investment in the Shares.
The SEC has stated that certain digital assets may be considered “securities” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Public, though
non-binding,
statements by senior officials at the SEC have indicated that the SEC did not consider Bitcoin or Ethereum to be securities, and does not currently consider Bitcoin to be a security. The SEC staff also provided informal assurances to a handful of promoters that their digital assets are not securities. On the other hand, the SEC has brought enforcement actions against the issuers and promoters of several other digital assets on the basis that the digital assets in question are securities.If Bitcoin is determined to be a “security” under federal or state securities laws by the SEC or any other agency, or in a proceeding in a court of law or otherwise, it may have material adverse consequences for Bitcoin. For example, it may become more difficult for Bitcoin to be traded, cleared and custodied as compared to other digital assets that are not considered to be securities, which could, in turn, negatively affect the liquidity and general acceptance of Bitcoin and cause users to migrate to other digital assets. As such, any determination that Bitcoin is a security under federal or state securities laws may adversely affect the value of Bitcoin and, as a result, an investment in the Shares.
11
To the extent that Bitcoin is determined to be a security, the Trust and the Sponsor may also be subject to additional regulatory requirements, including those under the Investment Company Act of 1940, and the Sponsor may be required to register as an investment adviser under the Investment Advisers Act of 1940. If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will terminate the Trust. Any such termination could result in the liquidation of the Trust’s Bitcoin at a time that is disadvantageous to Shareholders. shareholders.
To the extent a private key required to access a Bitcoin address is lost, destroyed or otherwise compromised and no backup of the private keys are accessible, the Trust may be unable to access the Bitcoin controlled by the private key and the private key will not be capable of being restored by the Bitcoin network.Network. The processes by which Bitcoin transactions are settled are dependent on thenetwork, and as such, the Trust is subject to operational risk. A risk also exists with respect to previously unknown technical vulnerabilities, which may adversely affect the value of Bitcoin.
peer-to-peer
The Trust relies on third party service providers to perform certain functions essential to its operations. Any disruptions to the Trust’s or the Trust’s service providers’ business operations resulting from business restrictions, quarantines or restrictions on the ability of personnel to perform their jobs as a result of the
COVID-19
pandemic could have an adverse impact on the Trust’s ability to access critical services and would be disruptive to the operation of the Trust.8. Financial Highlights Per Share Performance
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Per Share Data: | ||||||||
Net asset value, beginning of period | $ | 6.93 | $ | 3.64 | ||||
Net (decrease) increase in net assets from investment operation s : | ||||||||
Net investment loss | (0.04 | ) | (0.02 | ) | ||||
Net realized and unrealized (loss) gain | (0.65 | ) | 0.41 | |||||
Net (decrease) increase in net assets resulting from operations | (0.69 | ) | 0.39 | |||||
Net asset value, end of period | $ | 6.24 | $ | 4.03 | ||||
Total return | -32.66 | % | 54.34 | % | ||||
Ratios to average net assets: | ||||||||
Net investment loss | -2.00 | % | -2.00 | % | ||||
Expenses | -2.00 | % | -2.00 | % | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Per Share Data: | ||||||||||||||||
| Net asset value, beginning of period | $ | 17.42 | $ | 32.70 | $ | 42.72 | $ | 27.73 | ||||||||
| Net increase (decrease) in net assets from investment operations: | ||||||||||||||||
| Net investment loss | (0.10 | ) | (0.20 | ) | (0.44 | ) | (0.63 | ) | ||||||||
| Net realized and unrealized gain (loss) | 0.55 | 8.24 | (24.41 | ) | 13.64 | |||||||||||
| Net increase (decrease) in net assets resulting from operations | 0.45 | 8.04 | (24.85 | ) | 13.01 | |||||||||||
| Net asset value, end of period | $ | 17.87 | $ | 40.74 | $ | 17.87 | $ | 40.74 | ||||||||
| Total return | 2.58 | % | 24.59 | % | (58.17 | )% | 46.92 | % | ||||||||
Ratios to average net assets: | ||||||||||||||||
| Net investment loss | (2.00 | )% | (2.00 | )% | (2.00 | )% | (2.00 | )% | ||||||||
| Expenses | (2.00 | )% | (2.00 | )% | (2.00 | )% | (2.00 | )% | ||||||||
Ratios of net investment loss and expenses to average net assets have been annualized.
An individual Shareholder’sshareholder’s return, ratios, and per Share performance may vary from those presented above based on the timing of Share transactions. The amount shown for a Share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the number of Shares issued in Creations occurring at an operational value derived from an operating metric as defined in the Trust Agreement.
Total return is calculated assuming an initial investment made at the net asset value at the beginning of the
period
and assuming redemption on the last day of the period.
9. Indemnifications
In the normal course of business, the Trust enters into certain contracts that provide a variety of indemnities, including contracts with the Sponsor and affiliates of the Sponsor, DCG and its officers, directors, employees, subsidiaries and affiliates, and the Custodian as well as others relating to services provided to the Trust. The Trust’s maximum exposure under these and its other indemnities is unknown. However, no liabilities have arisen under these indemnities in the past and, while there can be no assurances in this regard, there is no expectation that any will occur in the future. Therefore, the Sponsor does not consider it necessary to record a liability in this regard.
10. Subsequent Events
On October 3, 2022, the Sponsor of the Trust entered into a distribution and marketing agreement (the “Distribution and Marketing Agreement”) with Grayscale Securities to assist the Sponsor in distributing the Shares of the Trust, developing an ongoing marketing plan for the Trust, preparing marketing materials regarding the Shares, including the content on the Trust’s website, and executing the marketing plan for the Trust. As a result, effective October 3, 2022, Grayscale Securities is the distributor and marketer of the Shares. Grayscale Securities is a registered broker-dealer with the SEC and is a member of FINRA.
On October 3, 2022, the Sponsor entered into a participant agreement (the “Participant Agreement”) with Grayscale Securities, 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
12
engage one or more service providers (any such service provider, 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.
On October 3, 2022, in connection with the entry into the Distribution and Marketing Agreement with Grayscale Securities, the Sponsor and Genesis agreed to terminate the distribution and marketing agreement, dated November 15, 2019, among the Sponsor, the Trust and Genesis, pursuant to which Genesis assisted the Sponsor in distributing the Shares. As a result, effective October 3, 2022, Genesis is no longer acting as the distributor and marketer of the Shares of the Trust.
On October 3, 2022, the Sponsor and Genesis agreed to terminate the participant agreement, dated January 11, 2019, among the Sponsor, the Trust and Genesis, which provided the procedures for the creation of Shares. As a result, effective October 3, 2022, Genesis is no longer acting as an Authorized Participant of the Trust but will continue to serve as a Liquidity Provider.
As of the close of business on May1, 2020October 31, 2022, the fair value of Bitcoin determined in accordance with the Trust’s accounting policy was $8,731.74$20,367.62 per Bitcoin.
There are no known events that have occurred that require disclosure other than that which has already been disclosed in these notes to the financial statements.
13
and Exchange Markets, each as defined in the FASB ASC 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(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. |
14
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. |
| • | 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. 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. As a result of the aforementioned analysis, an Exchange Market has been selected as the Trust’s principal market. |
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 thean Authorized Participant from the sale of the corresponding Shares to investors.
Investment Company Considerations
The Trust is an investment company for GAAP purposes and follows accounting and reporting guidance in accordance with the FASB ASC Topic 946,
Financial Services – Investment Companies
Review of Financial Results (unaudited)
Financial Highlights for the Three and Nine Months ended March 31, 2020Ended September 30, 2022 and 2019
September 30, 2021
(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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Net realized and unrealized gain (loss) on investment in Bitcoin | $ | 379,521 | $ | 5,703,333 | $ | (16,898,390 | ) | $ | 9,021,257 | |||||||
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Net increase (decrease) in net assets resulting from operations | $ | 311,269 | $ | 5,566,037 | $ | (17,201,335 | ) | $ | 8,588,187 | |||||||
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Net assets | $ | 12,374,718 | $ | 28,209,892 | $ | 12,374,718 | $ | 28,209,892 | ||||||||
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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
15
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Net realized and unrealized (loss) gain on investment in Bitcoin | $ | (271,710 | ) | $ | 88,380 | |||
Net (decrease) increase in net assets resulting from operations | $ | (283,503 | ) | $ | 84,518 | |||
Net assets | $ | 1,972,244 | $ | 877,972 | ||||
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 threenine months ended March 31, 2020September 30, 2022 was ($271,710)$(16,898,390) which includes a realized gain of $6,480$194,506 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of ($278,190)$(17,092,896). Net realized and unrealized loss on investment in Bitcoin for the yearperiod was driven by Bitcoin price
depreciation from $7,145.00$45,867.86 per Bitcoin as of December 31, 20192021 to $6,474.20$19,480.51 per Bitcoin as of March 31, 2020.September 30, 2022. Net decrease in net assets resulting from operations was ($283,503)$(17,201,335) for the threenine months ended March 31, 2020,September 30, 2022, which consisted of the net realized and unrealized loss on investment in Bitcoin, plus the Sponsor’s Fee of $11,793.$302,945. Net assets increaseddecreased to $1,972,244$12,374,718 at March 31, 2020,September 30, 2022, a 6% increase(58)% decrease for the period. The increasedecrease 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 by the withdrawal of approximately 1,4299,574 Bitcoin to pay the foregoing Sponsor’s Fee.
Net realized and unrealized gain on investment in Bitcoin for the threenine months ended March 31, 2019September 30, 2021 was $88,380$9,021,257 which includes a realized gain of $1,844$324,729 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $86,536.$8,696,528. Net realized and unrealized gain on investment in Bitcoin for the yearperiod was driven by Bitcoin price appreciation from $3,679.42$29,185.05 per Bitcoin as of December 31, 20182020 to $4,094.99$43,529.16 per Bitcoin as of March 31, 2019.September 30, 2021. Net increase in net assets resulting from operations was $84,518$8,588,187 for the threenine months ended March 31, 2019,September 30, 2021, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $3,862.$433,070. Net assets increased to $877,972$28,209,892 at March 31, 2019,September 30, 2021, a 17%59% increase for the period. The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 11,15450,739 Bitcoin with a value of $41,832$1,905,227 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 1,0309,709 Bitcoin to pay the foregoing Sponsor’s Fee.
Cash Resources and Liquidity
The Trust has not had a cash balance at any time since inception. When selling Bitcoins, Incidental Rights and/or IR Virtual Currency in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, 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.
Furthermore, the Trust is not a party to any off-balance sheet arrangements.
In exchange for the Sponsor’s 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 Quarterly Report was the Sponsor’s 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.
Selected Operating Data
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(All Bitcoin balances are rounded to the nearest whole Bitcoin) | ||||||||
Bitcoins: | ||||||||
Opening Balance | 261,192 | 204,277 | ||||||
Creations | 44,868 | 11,154 | ||||||
Sponsor’s Fee, related party | (1,429 | ) | (1,030 | ) | ||||
Closing balance | 304,631 | 214,401 | ||||||
Accrued but unpaid Sponsor’s Fee, related party | — | — | ||||||
Net closing balance | 304,631 | 214,401 | ||||||
Number of Shares: | ||||||||
Opening balance | 269,445,300 | 206,559,100 | ||||||
Creations | 46,382,700 | 11,309,100 | ||||||
Closing balance | 315,828,000 | 217,868,200 | ||||||
As of March 31, | ||||||||
2020 | 2019 | |||||||
Price of Bitcoin on principal market(1) | $ | 6,474.20 | $ | 4,094.99 | ||||
NAV per Share(2) | $ | 6.24 | $ | 4.03 | ||||
Index Price | $ | 6,466.48 | $ | 4,088.08 | ||||
Digital Asset Holdings per Share(3) | $ | 6.24 | $ | 4.02 | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
(All Bitcoin balances are rounded to the nearest whole Bitcoin) Bitcoins: | ||||||||||||||||
Opening Balance | 638,446 | 651,344 | 644,810 | 607,039 | ||||||||||||
Creations | — | — | — | 50,739 | ||||||||||||
Sponsor’s Fee, related party | (3,210 | ) | (3,275 | ) | (9,574 | ) | (9,709 | ) | ||||||||
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| |||||||||
Closing balance | 635,236 | 648,069 | 635,236 | 648,069 | ||||||||||||
Accrued but unpaid Sponsor’s Fee, related party | — | — | — | — | ||||||||||||
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Net closing balance | 635,236 | 648,069 | 635,236 | 648,069 | ||||||||||||
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| |||||||||
Number of Shares: | ||||||||||||||||
Opening balance | 692,370,100 | 692,370,100 | 692,370,100 | 638,906,600 | ||||||||||||
Creations | — | — | — | 53,463,500 | ||||||||||||
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Closing Balance | 692,370,100 | 692,370,100 | 692,370,100 | 692,370,100 | ||||||||||||
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| As of September 30, | ||||||||
| 2022 | 2021 | |||||||
Price of Bitcoin on principal market (1) | $ | 19,480.51 | $ | 43,529.16 | ||||
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| |||||
NAV per Share (2) | $ | 17.87 | $ | 40.74 | ||||
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Index Price (3) | $ | 19,491.57 | $ | 43,578.00 | ||||
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| |||||
Digital Asset Holdings per Share (3) | $ | 17.88 | $ | 40.79 | ||||
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| (1) | The Trust performed an assessment of the principal market at |
16
| (2) | As of |
| (3) | 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 the10-K for a description of the |
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. At this time, the Trust is not accepting redemption requests from Shareholders.shareholders. Subject to receipt of regulatory approval from the SEC and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust currently has no intentionnot sought such relief as of seeking regulatory approval to operate an ongoing redemption program.
the date of this Quarterly Report.March 31, 2020,September 30, 2022, the Trust had a total market value of $1,972,244,030,$12,374,718,203, based on the principal market (Coinbase Pro).
As of March 31, 2020,September 30, 2022, the Trust had a net closing balance with a value of $1,969,892,276,$12,381,743,912 based on the Index Price
(non-GAAP
methodology). As of 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
Historical Digital Asset Holdings and Bitcoin Prices
As movements in the price of Bitcoin will directly affect the price of the Shares, investors should understand recent movements in the price of Bitcoin. Investors, however, should also be aware that past movements in the Bitcoin price are not indicators of future movements. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by Service Providers,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.September 30, 2022:
17
18
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.September 30, 2022. Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $18,756.45,$67,352.59, with the straight average being $3,422.74.
Period | Average | High | Date | Low | Date | End of period | Last business day | |||||||||||||||||||||
Twelve months ended March 31, 2016 | $ | 311.86 | $ | 459.52 | 12/18/2015 | $ | 211.86 | 8/25/2015 | $ | 414.70 | $ | 414.70 | ||||||||||||||||
Twelve months ended March 31, 2017 | $ | 719.90 | $ | 1,279.00 | 3/6/2017 | $ | 416.00 | 4/1/2016 | $ | 1,056.48 | $ | 1,056.48 | ||||||||||||||||
Twelve months ended March 31, 2018 | $ | 6,242.51 | $ | 18,756.45 | 12/18/2017 | $ | 1,056.48 | 4/1/2017 | $ | 6,990.70 | $ | 7,580.80 | ||||||||||||||||
Twelve months ended March 31, 2019 | $ | 5,863.11 | $ | 9,650.29 | 5/4/2018 | $ | 3,228.07 | 12/14/2018 | $ | 4,088.08 | $ | 4,056.31 | ||||||||||||||||
Twelve months ended March 31, 2020 | $ | 8,441.28 | $ | 12,681.53 | 7/10/2019 | $ | 4,118.78 | 4/1/2019 | $ | 6,466.48 | $ | 6,466.48 | ||||||||||||||||
September 25, 2013 (the inception of the Trust’s operations) to March 31, 2020 | $ | 3,422.74 | $ | 18,756.45 | 12/18/2017 | $ | 117.03 | 10/3/2013 | $ | 6,466.48 | $ | 6,466.48 | ||||||||||||||||
$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.
| High | Low | |||||||||||||||||||||||||||
Period | Average | Index Price | Date | Index Price | Date | End of period | Last business day | |||||||||||||||||||||
Twelve months ended September 30, 2018 | $ | 8,590.24 | $ | 19,209.14 | 12/16/2017 | $ | 4,208.00 | 10/4/2017 | $ | 6,588.01 | $ | 6,672.04 | ||||||||||||||||
Twelve months ended September 30, 2019 | $ | 6,637.10 | $ | 13,838.57 | 6/26/2019 | $ | 3,164.99 | 12/14/2018 | $ | 8,283.98 | $ | 8,283.98 | ||||||||||||||||
Twelve months ended September 30, 2020 | $ | 8,882.82 | $ | 12,344.33 | 8/17/2020 | $ | 4,941.00 | 3/16/2020 | $ | 10,714.86 | $ | 10,714.86 | ||||||||||||||||
Twelve months ended September 30, 2021 | $ | 37,557.27 | $ | 63,472.70 | 4/15/2021 | $ | 10,520.62 | 10/2/2020 | $ | 43,578.00 | $ | 43,578.00 | ||||||||||||||||
Twelve months ended September 30, 2022 | $ | 37,742.31 | $ | 67,352.59 | 11/9/2021 | $ | 18,034.01 | 6/18/2022 | $ | 19,491.57 | $ | 19,491.57 | ||||||||||||||||
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September 25, 2013 (the first Creation Basket of the Trust) to September 30, 2022 | $ | 11,365.05 | $ | 67,352.59 | 11/9/2021 | $ | 117.03 | 10/3/2013 | $ | 19,491.57 | $ | 19,491.57 | ||||||||||||||||
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 March 31, 2020.September 30, 2022. Since the beginning of the Trust’s operations, the price of Bitcoin has ranged from $110.83 to $19,433.21,$67,371.70, with the straight average being $3,437.86:$11,366.41 through September 30, 2022.
| High | Low | |||||||||||||||||||||||||||
Period | Average | Digital Asset Market Price | Date | Digital Asset Market Price | Date | End of period | Last business day | |||||||||||||||||||||
Twelve months ended September 30, 2018 | $ | 8,601.17 | $ | 19,433.21 | 12/16/2017 | $ | 4,208.00 | 10/4/2017 | $ | 6,588.01 | $ | 6,675.09 | ||||||||||||||||
Twelve months ended September 30, 2019 | $ | 6,637.57 | $ | 13,849.81 | 6/26/2019 | $ | 3,164.61 | 12/14/2018 | $ | 8,283.71 | $ | 8,283.71 | ||||||||||||||||
Twelve months ended September 30, 2020 | $ | 8,882.90 | $ | 12,342.86 | 8/17/2020 | $ | 4,950.39 | 3/16/2020 | $ | 10,708.57 | $ | 10,708.57 | ||||||||||||||||
Twelve months ended September 30, 2021 | $ | 37,558.18 | $ | 63,466.92 | 4/15/2021 | $ | 10,515.13 | 10/2/2020 | $ | 43,529.16 | $ | 43,529.16 | ||||||||||||||||
Twelve months ended September 30, 2022 | $ | 37,741.26 | $ | 67,371.70 | 11/9/2021 | $ | 18,026.58 | 6/18/2022 | $ | 19,480.51 | $ | 19,480.51 | ||||||||||||||||
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September 25, 2013 (the first Creation Basket of the Trust) to September 30, 2022 | $ | 11,366.41 | $ | 67,371.70 | 11/9/2021 | $ | 110.83 | 10/2/2013 | $ | 19,480.51 | $ | 19,480.51 | ||||||||||||||||
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.
19
Period | Average | High | Date | Low | Date | End of period | Last business day | |||||||||||||||||||||
Twelve months ended March 31, 2016 | $ | 311.91 | $ | 469.00 | 11/4/2015 | $ | 216.24 | 8/24/2015 | $ | 416.43 | $ | 416.43 | ||||||||||||||||
Twelve months ended March 31, 2017 | $ | 721.53 | $ | 1,290.01 | 3/10/2017 | $ | 415.59 | 4/1/2016 | $ | 1,084.70 | $ | 1,084.70 | ||||||||||||||||
Twelve months ended March 31, 2018 | $ | 6,307.72 | $ | 19,433.21 | 12/16/2017 | $ | 1,082.07 | 4/1/2017 | $ | 7,055.00 | $ | 7,337.16 | ||||||||||||||||
Twelve months ended March 31, 2019 | $ | 5,865.26 | $ | 9,815.55 | 5/5/2018 | $ | 3,164.61 | 12/14/2018 | $ | 4,094.99 | $ | 4,078.82 | ||||||||||||||||
Twelve months ended March 31, 2020 | $ | 8,472.15 | $ | 13,849.81 | 6/26/2019 | $ | 4,133.74 | 4/1/2019 | $ | 6,474.20 | $ | 6,474.20 | ||||||||||||||||
September 25, 2013 (the inception of the Trust’s operations) to March 31, 2020 | $ | 3,437.86 | $ | 19,433.21 | 12/16/2017 | $ | 110.83 | 10/2/2013 | $ | 6,474.20 | $ | 6,474.20 | ||||||||||||||||
GBTC Premium/(Discount): GBTC Share Price vs. 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.
GBTC Premium/(Discount): GBTC Share Price vs. Digital Asset Holdings per Share (%)
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Trust Agreement does not authorize the Trustee to borrow for payment of the Trust’s ordinary expenses. The Trust does not engage in transactions in foreign currencies which could expose the Trust or holders of Shares to any foreign currency related market risk. The Trust does not invest in derivative financial instruments and has no foreign operations or long-term debt instruments.
Item 4. Controls and Procedures
The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Principal Executive Officer and ChiefPrincipal Financial and Accounting Officer of the Sponsor, and to the audit committee of the Board of Directors of the Sponsor, as appropriate, to allow timely decisions regarding required disclosure.
20
Under the supervision and with the participation of the Principal Executive Officer and the ChiefPrincipal Financial and Accounting Officer of the Sponsor, the Sponsor conducted an evaluation of the Trusts disclosure controls and procedures, as defined under Exchange Act Rule
13a-15(e).
Based on this evaluation, the Principal Executive Officer and the Changes in Internal Control Over Financial Reporting
There was no change in the Trust’s internal controls over financial reporting that occurred during the Trust’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, these internal controls.
21
PART II – OTHER INFORMATION:
Item 1. Legal Proceedings
None.
Item 1A. Risk Factor, thereFactors
There have been no material changes to the Risk Factors last reported under Part I, Item 1A“Item 1A. Risk Factors” of the registrant’s Annual Report on Form
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of equity securities by the issuer and affiliated purchasers —The table below sets forth information regarding open market purchases of Shares of Grayscale Bitcoin Trust (BTC) (OTCQX: GBTC) by DCG, the parent company of the Sponsor, on a monthly basis during the three months ended September 30, 2022:
Period | (a) Total Number of Shares of GBTC Purchased | (b) Average Price Paid per Share of GBTC | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1 | (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs1 | ||||||||||||
| (in millions) | ||||||||||||||||
July 1, 2022 – July 31, 2022 | — | $ | — | — | $ | 428.2 | ||||||||||
August 1, 2022 – August 31, 2022 | — | — | — | 428.2 | ||||||||||||
September 1, 2022 – September 30, 2022 | — | — | — | 428.2 | ||||||||||||
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Total | — | $ | — | — | $ | 428.2 | ||||||||||
| (1) | On March 10, 2021, the Board approved the purchase by DCG, the parent company of the Sponsor, of up to $250 million worth of Shares of the Trust. Subsequently, DCG authorized such purchase. On April 30, 2021, the Board approved the purchase by DCG of up to $750 million worth of Shares of the Trust. This increased DCG’s prior authorization to purchase up to $250 million worth of Shares by $500 million. On October 20, 2021, the Board approved the purchase by DCG of up to $1 billion worth of Shares of the Trust. Subsequently, DCG authorized such purchase. This increased DCG’s prior authorization to purchase up to $750 million worth of Shares by $250 million. On March 2, 2022, the Board approved the purchase by DCG, the parent company of the Sponsor, of up to an aggregate total of $200 million worth of Shares of the Trust and shares of any of the following five investment products the Sponsor also acts as the sponsor and manager of, including Grayscale Bitcoin Cash Trust (BCH) (OTCQX: BCHG), Grayscale Digital Large Cap Fund LLC (OTCQX: GDLC), Grayscale Ethereum Trust (ETH) (OTCQX: ETHE), Grayscale Ethereum Classic Trust (ETC) (OTCQX: ETCG), and Grayscale Stellar Lumens Trust (XLM) (OTCQX: GXLM). This increased DCG’s prior authorization to purchase up to $1 billion worth of Shares by up to a maximum of $200 million. Subsequently, DCG authorized such purchase. The Share purchase authorization does not obligate DCG to acquire any specific number of Shares in any period, and may be expanded, extended, modified, or discontinued at any time. From March 10, 2021 through October 31, 2022, DCG has purchased a total of $771.8 million worth of Shares of the Trust. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
22
Changes to the novel coronavirus
On November 4, 2022, the Sponsor of the Trust appointed Hugh Ross, Chief Operating Officer of the Sponsor, to serve on the Audit Committee of the Board. Mr. Ross replaced Barry E. Silbert on the Audit Committee, who will remain as Chairman of the Board. Effective November 4, 2022, the Audit Committee consists of Michael Sonnenshein, Edward McGee, and significantly disrupt its operations.
Hugh Ross, Chief Operating Officer
Hugh Ross, 55, is the short-term, and may overChief Operating Officer of the longer term, adversely affectSponsor since February 2021. Prior to joining the economies and financial marketsSponsor, Mr. Ross served twelve years as Chief Operating Officer of many countries, resulting in an economic downturn that may adversely affect demand for digital assets generally and impact the value of, and demandHorizon Kinetics LLC, a New York-based investment manager where he was responsible for the operating infrastructure and various digital assets held byasset initiatives. During the ten years immediately preceding his tenure at Horizon Kinetics, Mr. Ross was a Vice President with Goldman Sachs & Co. where he served as Chief Operating Officer of the long-only investment manager research team then-known as Global Manager Strategies (“GMS”), within Goldman Sachs Asset Management (“GSAM”). Mr. Ross also served as a compliance officer for both GSAM and Goldman’s Private Wealth Management business. Prior to joining Goldman Sachs, Mr. Ross worked as an in-house counsel for a transfer agent and started his career as a securities industry attorney representing broker-dealers and investment advisers. Mr. Ross is a graduate of the Goizueta Business School at Emory University (B.B.A) and New York Law School (J.D.).
Changes to the Constituent Exchanges Used to Derive the Index Price
The Index Provider announced a change to the Constituent Exchanges used to derive the Index Price for the Trust. AlthoughEffective October 29, 2022, the magnitudeIndex Provider removed Bitstamp from the Index due to the exchange failing the minimum liquidity requirement, and added Binance.US as a Constituent Exchange due to the exchange meeting the minimum liquidity requirement as part of its scheduled quarterly review. As of the impactdate of the
23
Item 6. Exhibits
Exhibit | Exhibit Description | |||
| 4.1 | Participant Agreement, dated October 3, 2022, between Grayscale Investments, LLC and Grayscale Securities, LLC (incorporated by reference to Exhibit 4.1 of the periodic report on Form 8-K filed by the Registrant on October 3, 2022). | |||
| 10.1 | 10.1 of the periodic report on Form 8-K filed by the Registrant on October 3, 2022). | |||
| 31.1 | ||||
| 31.2 | ||||
| 32.1 | ||||
| 32.2 | ||||
| 101.INS* | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||
| 101.SCH* | ||||
Inline XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL* | ||||
Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.LAB* | ||||
Inline XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE* | ||||
Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| 101.DEF* | ||||
Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 104 | ||||
Cover Page Interactive Data File—The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | ||||
| * | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
24
GLOSSARY OF DEFINED TERMS
“
Actual Exchange Rate
“
Additional Trust Expenses
“
Administrator
do a banking business.”—The fee payable to any administrator of the AdministratorTrust for services it provides to the Trust, which the Sponsor will pay the Administratorsuch administrator as a Sponsor-paid Expense.
“
Administrator Fee
“
Agent
“
Authorized Participant
Participant or such Authorized Participant’s Liquidity Provider.”—A block of 100 Shares.
“
Basket
“
Basket Amount
one-hundred-millionth
of one Bitcoin “
Bitcoin
BTC
“
Bitcoin Network
See “Item 1. Business—Overview of the BTC Industry and Market” in our Annual Report.Blockchain”Blockchain” or “Bitcoin Blockchain”“Bitcoin Blockchain”—The public transaction ledger of the Bitcoin Network on which miners or mining pools solve algorithmic equations allowing them to add records of recent transactions (called “blocks”) to the chain of transactions in exchange for an award of Bitcoins from the Bitcoin Network and the payment of transaction fees, if any, from users whose transactions are recorded in the block being added.
“
recorded.”—Basket of Shares issued by the Trust in exchange for deposits of the Basket Amount required for each such Creation Basket.
“
Creation Basket
“
Custodial Services
“
Custodian
“
Custodian Agreement
25
“Custodian Fee
“
DCG
“
Digital Asset Account
“
Digital Asset Exchange
bid-ask
trading. The largest Digital Asset Exchanges are online and typically trade on a24-hour
basis, publishing transaction price and volume data.“
Digital Asset Exchange Market
“
Digital Asset Holdings
“
Digital Asset Holdings Fee Basis Amount
Report.”—A dealer market, brokered market,principal-to-principalmarket“Brokered Market,” “Dealer Market,” “Principal-to-Principal Market” or exchange market on which Bitcoins are bought and sold.
“
Digital Asset Market
Financial Accounting Standards Board Accounting Standards Codification Master Glossary.”—The Delaware Statutory Trust Act, as amended.
“
DSTA
“
DTC
“
Exchange Act
“
“GAAP”— United States generally accepted accounting principles.
“
Genesis
“Grayscale Securities”— Grayscale Securities, LLC, a wholly owned subsidiary of the Sponsor, which as of the date of this Quarterly Report, is the only acting Authorized Participant.
“
Incidental Rights
“
Index
CoinDesk Bitcoin Price Index (XBX).”—The license agreement, entered into bydated as of February 1, 2022, between the Index Provider and the Sponsor governing the Sponsor’s use of the Index for calculation of the Index Price.
“
Index License Agreement
“
Index Price
“
Index Provider
26
“
Investment Advisers Act
“
Investment Company Act
“
Investor
“
IR Virtual Currency
“
IRS
“
creation of Shares.”—Fee payable to the Marketermarketer for services it provides to the Trust, which the Sponsor will pay to the Marketermarketer as a Sponsor-paid Expense.
“
Marketing Fee
“
NAV
“
OTCQX
“
Participant Agreement
“
SEC
“
Secondary Market
“
Securities Act
“
“
Share Split
91-for-1
Share split of the Trust’s issued and outstanding Shares, which was effected on January 26, 2018 to “
Sponsor
“
Sponsor-paid Expenses
“
Sponsor’s Fee
provided
“
“
Transfer Agent Fee
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“Trust
“
Trust Agreement
“
Trustee
“
U.S.
“
U.S. dollar
$
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated, thereunto duly authorized.
Grayscale Investments, | ||||
| as Sponsor of Grayscale Bitcoin Trust (BTC) | ||||
| By: | ||||
/s/ | ||||
| Michael Sonnenshein | ||||
Name: | ||||
Member of the Board of Directors | ||||
and | ||||
| Title: (Principal Executive Officer)* | ||||
| By: | /s/ Edward McGee | |||
| Name: Edward McGee | ||||
Chief Financial Officer | ||||
| Title: (Principal Financial Officer and Principal Accounting Officer)* | ||||
Date: May 8, 2020
| * | The Registrant is a trust and the persons are signing in their capacities as officers or directors of Grayscale Investments, LLC, the Sponsor of the Registrant. |
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