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, 2020
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission File Number
Grayscale
SPONSORED BY GRAYSCALE INVESTMENTS, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 46-7019388 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
c/o Grayscale Investments, LLC
290 Harbor Drive, 4th Floor
Stamford, Connecticut 06902
(Address of Principal Executive Offices) (Zip Code)
(212)
(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 |
N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: Grayscale Bitcoin Trust (BTC) Shares
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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
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 el
Indicate by check mark whether the registrant is a shell company (as defined in Rule
Number of shares of the registrant’s common stock outstanding as of
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2
Statement Regarding Forward-Looking Statements
This Quarterly Report on Form
Unless otherwise stated or the context otherwise requires, the terms “we,” “our” and “us” in this Quarterly Report refer to the Sponsor acting on behalf of the Trust.
A glossary of industry and other defined terms is included in this Quarterly Report, begins on page 25.
Industry and Market Data
Although we are responsible for all disclosure contained in this Quarterly Report on Form
3
PART I – FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
GRAYSCALE BITCOIN TRUST (BTC)
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
(Amounts in thousands, except Share amounts)
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Assets: |
|
|
|
|
|
|
|
|
Investment in Bitcoin, at fair value (cost $7,414,166 and $5,543,305 as of March 31, 2021 and December 31, 2020, respectively) |
| $ | 38,360,399 |
|
| $ | 17,716,478 |
|
Total assets |
| $ | 38,360,399 |
|
| $ | 17,716,478 |
|
Liabilities: |
|
|
|
|
|
|
|
|
Sponsor's Fee payable, related party |
| $ | 0 |
|
| $ | 0 |
|
Total liabilities |
|
| 0 |
|
|
| 0 |
|
Net assets |
| $ | 38,360,399 |
|
| $ | 17,716,478 |
|
Net Assets consists of: |
|
|
|
|
|
|
|
|
Paid-in-capital |
|
| 7,513,961 |
|
|
| 5,608,734 |
|
Accumulated net investment loss |
|
| (318,640 | ) |
|
| (174,340 | ) |
Accumulated net realized gain on investment in Bitcoin |
|
| 218,845 |
|
|
| 108,911 |
|
Accumulated net change in unrealized appreciation on investment in Bitcoin |
|
| 30,946,233 |
|
|
| 12,173,173 |
|
|
| $ | 38,360,399 |
|
| $ | 17,716,478 |
|
Shares issued and outstanding, no par value (unlimited Shares authorized) |
|
| 692,370,100 |
|
|
| 638,906,600 |
|
Net asset value per Share |
| $ | 55.40 |
|
| $ | 27.73 |
|
(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 | ||||
See accompanying notes to the unaudited financial statements
4
GRAYSCALE BITCOIN TRUST (BTC)
SCHEDULES OF INVESTMENT (UNAUDITED)
(Amounts in thousands, except quantity of Bitcoin and percentages)
March 31, 2021 |
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| Quantity of Bitcoin |
|
| Cost |
|
| Fair Value |
|
| % of Net Assets |
| ||||
Investment in Bitcoin |
|
| 654,600.12768251 |
|
| $ | 7,414,166 |
|
| $ | 38,360,399 |
|
|
| 100 | % |
Net assets |
|
|
|
|
| $ | 7,414,166 |
|
| $ | 38,360,399 |
|
|
| 100 | % |
|
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|
December 31, 2020 |
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| Quantity of Bitcoin |
|
| Cost |
|
| Fair Value |
|
| % of Net Assets |
| ||||
Investment in Bitcoin |
|
| 607,039.48515191 |
|
| $ | 5,543,305 |
|
| $ | 17,716,478 |
|
|
| 100 | % |
Net assets |
|
|
|
|
| $ | 5,543,305 |
|
| $ | 17,716,478 |
|
|
| 100 | % |
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 | % | ||||||||||
See accompanying notes to the unaudited financial statements
5
GRAYSCALE BITCOIN TRUST (BTC)
STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands)
|
| Three Months Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Investment income: |
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|
|
|
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|
Investment income |
| $ | - |
|
| $ | - |
|
Expenses: |
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|
|
|
|
|
|
|
Sponsor's Fee, related party |
|
| 144,300 |
|
|
| 11,793 |
|
Net investment loss |
|
| (144,300 | ) |
|
| (11,793 | ) |
Net realized and unrealized gain (loss) from: |
|
|
|
|
|
|
|
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Net realized gain on investment in Bitcoin |
|
| 109,934 |
|
|
| 6,480 |
|
Net change in unrealized appreciation (depreciation) on investment in Bitcoin |
|
| 18,773,060 |
|
|
| (278,190 | ) |
Net realized and unrealized gain (loss) on investment |
|
| 18,882,994 |
|
|
| (271,710 | ) |
Net increase (decrease) in net assets resulting from operations |
| $ | 18,738,694 |
|
| $ | (283,503 | ) |
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 | |||
See accompanying notes to the unaudited financial statements
6
GRAYSCALE BITCOIN TRUST (BTC)
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
(Amounts in thousands, except change in Shares outstanding)
|
| Three Months Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Increase (decrease) in net assets from operations: |
|
|
|
|
|
|
|
|
Net investment loss |
| $ | (144,300 | ) |
| $ | (11,793 | ) |
Net realized gain on investment in Bitcoin |
|
| 109,934 |
|
|
| 6,480 |
|
Net change in unrealized appreciation (depreciation) on investment in Bitcoin |
|
| 18,773,060 |
|
|
| (278,190 | ) |
Net increase (decrease) in net assets resulting from operations |
|
| 18,738,694 |
|
|
| (283,503 | ) |
Increase in net assets from capital share transactions: |
|
|
|
|
|
|
|
|
Shares issued |
|
| 1,905,227 |
|
|
| 389,529 |
|
Net increase in net assets resulting from capital share transactions |
|
| 1,905,227 |
|
|
| 389,529 |
|
Total increase in net assets from operations and capital share transactions |
|
| 20,643,921 |
|
|
| 106,026 |
|
Net assets: |
|
|
|
|
|
|
|
|
Beginning of period |
|
| 17,716,478 |
|
|
| 1,866,218 |
|
End of period |
| $ | 38,360,399 |
|
| $ | 1,972,244 |
|
Change in Shares outstanding: |
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period |
|
| 638,906,600 |
|
|
| 269,445,300 |
|
Shares issued |
|
| 53,463,500 |
|
|
| 46,382,700 |
|
Net increase in Shares |
|
| 53,463,500 |
|
|
| 46,382,700 |
|
Shares outstanding at end of period |
|
| 692,370,100 |
|
|
| 315,828,000 |
|
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 | ||||||
See accompanying notes to the unaudited financial statements
7
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 intention of seeking regulatory approval to operate an ongoing redemption program. The investment objective of the Trust is for the Shares 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 the
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 the “Authorized Participant”), a registered broker-dealer and wholly owned subsidiary of DCG, is the only Authorized Participant and is 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.
The custodian of 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.
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.
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, 20202021 and December 31, 20192020 and results of operations for the three months ended March 31, 20202021 and 20192020 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, 20192020 included in the Company’s Annual Report on Form
8
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,
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
The Trust only receives Bitcoin 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. The Authorized Participant transacts in a Brokered Market, a Dealer Market,
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
Second, the Trust sorts the remaining Digital Asset Markets from high to low by entity-specific and market-based volume and
Third, the Trust then reviews
Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Exchange Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Exchange Markets as opposed to the Brokered Market, Dealer Market and
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 the Authorized Participant from the sale of the corresponding Shares to investors.
9
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.
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 Measurement Using |
| ||||||||||
(Amounts in thousands) |
| Fair Value |
|
| Level 1 |
|
| Level 2 |
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| Level 3 |
| ||||
March 31, 2021 |
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Assets |
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Investment in Bitcoin |
| $ | 38,360,399 |
|
| $ | 0 |
|
| $ | 38,360,399 |
|
| $ | 0 |
|
December 31, 2020 |
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Assets |
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Investment in Bitcoin |
| $ | 17,716,478 |
|
| $ | 0 |
|
| $ | 17,716,478 |
|
| $ | 0 |
|
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 | $ | — | ||||||||
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, 2020,2021, and December 31, 2019,2020, the Trust held 304,631.31046282654,600.12768251 and 261,192.14022299607,039.48515191 Bitcoin, respectively.
The Trust determined the fair value per Bitcoin to be $6,474.20$58,601.27 and $7,145.00$29,185.05 on March 31, 20202021 and December 31, 2019,2020, 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).
10
The following represents the changes in quantity of Bitcoin and the respective fair value:
(Amounts in thousands, except Bitcoin amounts) |
| Bitcoin |
|
| Fair Value |
| ||
Balance at January 1, 2020 |
|
| 261,192.14022299 |
|
| $ | 1,866,218 |
|
Bitcoin contributed |
|
| 353,645.90363431 |
|
|
| 4,747,380 |
|
Bitcoin distributed for Sponsor's Fee, related party |
|
| (7,798.55870539 | ) |
|
| (93,505 | ) |
Net change in unrealized appreciation on investment in Bitcoin |
|
| - |
|
|
| 11,146,049 |
|
Net realized gain on investment in Bitcoin |
|
| - |
|
|
| 50,336 |
|
Balance at December 31, 2020 |
|
| 607,039.48515191 |
|
|
| 17,716,478 |
|
Bitcoin contributed |
|
| 50,738.88950472 |
|
|
| 1,905,227 |
|
Bitcoin distributed for Sponsor's Fee, related party |
|
| (3,178.24697412 | ) |
|
| (144,300 | ) |
Net change in unrealized appreciation on investment in Bitcoin |
|
| - |
|
|
| 18,773,060 |
|
Net realized gain on investment in Bitcoin |
|
| - |
|
|
| 109,934 |
|
Balance at March 31, 2021 |
|
| 654,600.12768251 |
|
| $ | 38,360,399 |
|
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 | |||||
4. Creations and Redemptions of Shares
At March 31, 20202021 and December 31, 2019,2020, 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
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. The Trust currently has no intention of seeking regulatory approval to operate an ongoing redemption program.
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.
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.
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, 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 maximum 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.
11
In accordance with GAAP, the Trust has defined the threshold for recognizing the benefits of tax return positions in the financial statements as“more-likely-than-not”“more-likely-than-not”“more-likely-than-not”20202021 and December 31, 2019,2020, 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”
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, 20202021 or December 31, 2019.
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.TradeBlock, Inc. As of March 31, 20202021 and December 31, 2019, 11,213,3922020, 12,009,724 and 12,617,86914,512,320 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.
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,
12
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) cause the Trust (or its delegate) to deliver such Bitcoins, Incidental Rights and/or IR Virtual Currency in kind in satisfaction of such Additional Trust Expenses.
For the three months ended March 31, 20202021 and 2019,2020, the Trust incurred Sponsor’s Fees of $11,793,388$144,299,795 and $3,862,438,$11,793,388, respectively. As of March 31, 20202021 and December 31, 2019,2020, there were 0 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 months ended March 31, 20202021 and 2019,2020, the Sponsor did not pay any Additional Trust Expenses on behalf of the Trust.
On March 10, 2021, the Board of the Sponsor 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. 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.
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 events and situations such as the novel coronavirus outbreak.
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.
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 SECSecurities and Exchange Commission (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 the outcome is difficult to predict. 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.
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. The processes by which Bitcoin transactions are settled are dependent on the
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
13
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, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Per Share Data: |
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
| $ | 27.73 |
|
| $ | 6.93 |
|
Net increase (decrease) in net assets from investment operations: |
|
|
|
|
|
|
|
|
Net investment loss |
|
| (0.21 | ) |
|
| (0.04 | ) |
Net realized and unrealized gain (loss) |
|
| 27.88 |
|
|
| (0.65 | ) |
Net increase (decrease) in net assets resulting from operations |
|
| 27.67 |
|
|
| (0.69 | ) |
Net asset value, end of period |
| $ | 55.40 |
|
| $ | 6.24 |
|
Total return |
|
| 1589.68 | % |
|
| -32.66 | % |
Ratios to average net assets: |
|
|
|
|
|
|
|
|
Net investment loss |
|
| -2.00 | % |
|
| -2.00 | % |
Expenses |
|
| -2.00 | % |
|
| -2.00 | % |
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 | % | ||||
Ratios of net investment loss and expenses to average net assets have been annualized.
An individual Shareholder’s return, individual shareholder’sreturn, ratios, and per Share performance may varymay vary fromthose presented above based basedonthe timingtiming of Share transactions.
Total return is calculated assuming an initial investment made at the net asset value at the beginning of the
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 April 30, 2021, the Board of the Sponsor approved the purchase by DCG, the parent company of the Sponsor, of up to $750 million worth of Shares of the Trust. Subsequently, DCG authorized such purchase. This increases DCG’s prior authorization to purchase up to $250 million worth of Shares by $500 million. Through April 30, 2021, DCG has purchased $193.5 million worth of Shares. 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.
As of the close of business on May
There are no known eventsevents that have occurred that require disclosure other than that which has already been disclosed in these notes to the financial statements.
14
The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with U.S. GAAP. The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those set forth under Part I, Item 1A. Risk Factors in this Quarterly Report or in Part II, Item 1A,1A. Risk Factors or other sections of our Annual Report on Form
Trust Overview
The Trust is a passive entity that is managed and administered by the Sponsor and does not have any officers, directors or employees. The Trust holds Bitcoins and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of Bitcoins. As a passive investment vehicle, the investment objective of the Trust is for the Shares (based on Bitcoin per Share) to reflect the value of the Bitcoins held by the Trust, determined by reference to the Index Price, less the Trust’s expenses and other liabilities. TheTo date, the Trust has not met its investment objective and the Shares are designedquoted on OTCQX have not reflected the value of Bitcoins held by the Trust, less the Trust’s expenses and other liabilities, but instead have traded at both premiums and discounts to provide investorssuch value, with a cost-effective and convenient way to invest in Bitcoin. variations that have at times been substantial. The Trust is not managed like a business corporation or an active investment vehicle.
Critical Accounting Policies and Estimates
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.
Principal Market and Fair Value Determination
To determine which market is the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust’s NAV, the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
The Trust only receives Bitcoin 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-specific and market-based volume and level of activity for Digital Asset Markets. The Authorized Participant transacts in a Brokered Market, a Dealer Market,
• | First, the Trust reviews a list of Digital Asset Markets and excludes any Digital Asset Markets that are non-accessible to the Trust and the Authorized Participant. The Trust or the Authorized Participant does not have access to Digital Asset Exchanges that do not have a BitLicense and has access only to non-Digital Asset Exchange Markets that the Authorized Participant reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market. |
• | Second, the Trust sorts the remaining Digital Asset Markets from high to low by entity-specific and market-based volume and level of activity of Bitcoin traded on each Digital Asset Market in the trailing twelve months. |
• | Third, the Trust then reviews intra-day pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market. |
• | 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 |
15
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 the 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,
Review of Financial Results (unaudited)
Financial Highlights for the Three Months endedEnded March 31, 20202021 and 2019
(All amounts in the following table and the subsequent paragraphs, except per Share, Bitcoin and price of Bitcoin amounts, are in thousands)
|
| Three Months Ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net realized and unrealized gain (loss) on investment in Bitcoin |
| $ | 18,882,994 |
|
| $ | (271,710 | ) |
Net increase (decrease) in net assets resulting from operations |
| $ | 18,738,694 |
|
| $ | (283,503 | ) |
Net assets |
| $ | 38,360,399 |
|
| $ | 1,972,244 |
|
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 | ||||
Net realized and unrealized gain on investment in Bitcoin for the three months ended March 31, 2021 was $18,882,994 which includes a realized gain of $109,934 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in Bitcoin of $18,773,060. Net realized and unrealized gain on investment in Bitcoin for the period was driven by Bitcoin price appreciation from $29,185.05 per Bitcoin as of December 31, 2020 to $58,601.27 per Bitcoin as of March 31, 2021. Net increase in net assets resulting from operations was $18,738,694 for the three months ended March 31, 2021, which consisted of the net realized and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $144,300. Net assets increased to $38,360,399 at March 31, 2021, a 117% increase for the period. The increase in net assets resulted from the aforementioned Bitcoin price appreciation and the contribution of approximately 50,739 Bitcoin with a value of $1,905,227 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 3,178 Bitcoin to pay the foregoing Sponsor’s Fee.
Net realized and unrealized loss on investment in Bitcoin for the three months ended March 31, 2020 was ($271,710) which includes a realized gain of $6,480 on the transfer of Bitcoins to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in Bitcoin of ($278,190). Net realized and unrealized loss on investment in Bitcoin for the yearperiod was driven by Bitcoin price
Off-Balance
The Trust is not a party to any
16
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 to pay Additional Trust Expenses, the Sponsor endeavors to sell the exact number of Bitcoins, Incidental Rights and/or IR Virtual Currency needed to pay expenses in order to minimize the Trust’s holdings of assets other than Bitcoin. As a consequence, the Sponsor expects that the Trust will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period.
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, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Bitcoins: |
|
|
|
|
|
|
|
|
Opening balance |
|
| 607,039 |
|
|
| 261,192 |
|
Creations |
|
| 50,739 |
|
|
| 44,868 |
|
Sponsor's Fee, related party |
|
| (3,178 | ) |
|
| (1,429 | ) |
Closing balance |
|
| 654,600 |
|
|
| 304,631 |
|
Accrued but unpaid Sponsor's Fee, related party |
|
| - |
|
|
| - |
|
Net closing balance |
|
| 654,600 |
|
|
| 304,631 |
|
Number of Shares: |
|
|
|
|
|
|
|
|
Opening balance |
|
| 638,906,600 |
|
|
| 269,445,300 |
|
Creations |
|
| 53,463,500 |
|
|
| 46,382,700 |
|
Closing balance |
|
| 692,370,100 |
|
|
| 315,828,000 |
|
|
| As of March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Price of Bitcoin on principal market (1) |
| $ | 58,601.27 |
|
| $ | 6,474.20 |
|
NAV per Share (2) |
| $ | 55.40 |
|
| $ | 6.24 |
|
Index Price |
| $ | 58,697.27 |
|
| $ | 6,466.48 |
|
Digital Asset Holdings per Share (3) |
| $ | 55.50 |
|
| $ | 6.24 |
|
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 | ||||
(1) | The Trust performed an assessment of the principal market at March 31, |
(2) | As of March 31, |
(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 |
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 intention of seeking regulatory approval to operate an ongoing redemption program.
As of March 31, 2021, the Trust had a net closing balance with a value of $38,423,240,437, based on the Index Price (non-GAAP methodology). As of March 31, 2021, the Trust had a total market value of $38,360,398,824, based on the principal market (Coinbase Pro).
17
As of March 31, 2020, the Trust had a net closing balance with a total value of $1,969,892,276, based on the Index Price(non-GAAP
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.
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, 2020.2021. Since the beginning of the Trust’s operations, the Index Price has ranged from $117.03 to $18,756.45,$60,609.43, with the straight average being $3,422.74.$5,644.64 through March 31, 2021. The Sponsor has not observed a material difference between the Index Price and average prices from the constituent Digital Asset Exchanges individually or as a group.
Period |
| Average |
|
| High |
|
| Date |
| Low |
|
| Date |
| End of period |
|
| Last business day |
| |||||
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 |
|
Twelve months ended March 31, 2021 |
| $ | 20,132.62 |
|
| $ | 60,609.43 |
|
| 3/14/2021 |
| $ | 6,295.04 |
|
| 4/1/2020 |
| $ | 58,697.27 |
|
| $ | 58,697.27 |
|
September 25, 2013 (the first Creation Basket of the Trust) to March 31, 2021 |
| $ | 5,644.64 |
|
| $ | 60,609.43 |
|
| 3/14/2021 |
| $ | 117.03 |
|
| 10/3/2013 |
| $ | 58,697.27 |
|
| $ | 58,697.27 |
|
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 |
18
The following table illustrates the movements in the price of Bitcoin, as reported on the Trust’s principal market, from the beginning of the Trust’s operations on September 25, 2013 to March 31, 2020.2021. Since the beginning of the Trust’s operations, the price of Bitcoin has ranged from $110.83 to $19,433.21,$61,607.76, with the straight average being $3,437.86:$5,670.20.
Period |
| Average |
|
| High |
|
| Date |
| Low |
|
| Date |
| End of period |
|
| Last business day |
| |||||
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 |
|
Twelve months ended March 31, 2021 |
| $ | 20,226.28 |
|
| $ | 61,607.76 |
|
| 3/13/2021 |
| $ | 6,214.99 |
|
| 4/1/2020 |
| $ | 58,601.27 |
|
| $ | 58,601.27 |
|
September 25, 2013 (the first Creation Basket of the Trust) to March 31, 2021 |
| $ | 5,670.20 |
|
| $ | 61,607.76 |
|
| 3/13/2021 |
| $ | 110.83 |
|
| 10/2/2013 |
| $ | 58,601.27 |
|
| $ | 58,601.27 |
|
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 |
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.
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 (%)
19
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.
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
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.
20
PART II – OTHER INFORMATION:
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Except for the following new Risk Factor,summary of the principal risk factors, there have been no material changes to the Risk Factors last reported under Part I, Item 1A of the registrant’s Annual Report on Form
Summary of Risk Factors
Below is a summary of the Trust’s holdingsprincipal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and significantly disrupt its operations.
• | The trading prices of many digital assets, including Bitcoin, have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility in the future, including further declines in the trading prices of Bitcoin, could have a material adverse effect on the value of the Shares and the Shares could lose all or substantially all of their value. |
• | Digital assets such as Bitcoin were only introduced within the past decade, and the medium-to-long term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies and to the fundamental investment characteristics of digital assets. |
• | Digital assets represent a new and rapidly evolving industry, and the value of the Shares depends on the acceptance of Bitcoin. |
• | A determination that Bitcoin or any other digital asset is a “security” may adversely affect the value of Bitcoin and the value of the Shares, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Trust. |
• | Changes in the governance of a digital asset network may not receive sufficient support from users and miners, which may negatively affect that digital asset network’s ability to grow and respond to challenges. |
• | Digital asset networks face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful. |
• | Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital asset. |
• | If the digital asset award for mining blocks and transaction fees for recording transactions on the Bitcoin Network are not sufficiently high to incentivize miners, miners may cease expanding processing power or demand high transaction fees, which could negatively impact the value of Bitcoin and the value of the Shares. |
• | If a malicious actor or botnet obtains control of more than 50% of the processing power on the Bitcoin Network, or otherwise obtains control over the Bitcoin Network through its influence over core developers or otherwise, such actor or botnet could manipulate the Blockchain to adversely affect the value of the Shares or the ability of the Trust to operate. |
• | A temporary or permanent “fork” could adversely affect the value of the Shares. |
• | The value of the Shares relates directly to the value of Bitcoins, the value of which may be highly volatile and subject to fluctuations due to a number of factors. |
• | Due to the unregulated nature and lack of transparency surrounding the operations of Digital Asset Exchanges, they may experience fraud, security failures or operational problems, which may adversely affect the value of Bitcoin and, consequently, the value of the Shares. |
• | The Index has a limited history and a failure of the Index Price could adversely affect the value of the Shares. |
21
• | The Index Price used to calculate the value of the Trust’s Bitcoin may be volatile, and purchasing activity in the Digital Asset Markets associated with Basket creations may affect the Index Price and Share trading prices, adversely affecting the value of the Shares. |
• | Competition from the emergence or growth of other digital assets or methods of investing in Bitcoin could have a negative impact on the price of Bitcoin and adversely affect the value of the Shares. |
• | The Trust faces risks related to COVID-19 outbreak, which could negatively impact the value of the Trust’s holdings and significantly disrupt its affairs. |
• | Because of the holding period under Rule 144, the lack of an ongoing redemption program and the Trust’s ability to halt creations from time to time, there is no arbitrage mechanism to keep the price of the Shares closely linked to the Index Price and the Shares have historically traded at a substantial premium over the Digital Asset Holdings per Share. |
• | The Shares may trade at a price that is at, above or below the Trust’s Digital Asset Holdings per Share as a result of the non-current trading hours between OTCQX and the Digital Asset Exchange Market. |
• | Shareholders who purchase Shares on OTCQX that are trading at a substantial premium over the Digital Asset Holdings per Share may suffer a loss on their investment if such premium decreases. |
• | The restrictions on transfer and redemption may result in losses on an investment in the Shares. |
• | There is no guarantee that an active trading market for the Shares will continue to develop. |
• | Security threats to the Digital Asset Account could result in the halting of Trust operations and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the price of the Shares. |
• | Bitcoin transactions are irrevocable and stolen or incorrectly transferred Bitcoins may be irretrievable. As a result, any incorrectly executed Bitcoin transactions could adversely affect the value of the Shares. |
• | The Trust may be required, or the Sponsor may deem it appropriate, to terminate and liquidate at a time that is disadvantageous to shareholders. |
• | Regulatory changes or actions may affect the value of the Shares or restrict the use of Bitcoins, mining activity or the operation of the Bitcoin Network or the Digital Asset Markets in a manner that adversely affects the value of the Shares. |
• | The treatment of the Trust for U.S. federal income tax purposes is uncertain. |
• | The treatment of digital currency for U.S. federal income tax purposes is uncertain. |
• | Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no fiduciary duties to the Trust and its shareholders other than as provided in the Trust Agreement, which may permit them to favor their own interests to the detriment of the Trust and its shareholders. |
• | The Index Provider, which calculates the Index Price, is an affiliate of the Sponsor and the Trust. |
• | Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust. |
22
Item 2. Unregistered Sales of Equity Securities and may over the longer term, adversely affect the economies and financial marketsUse of many countries, resulting in an economic downturn that may adversely affect demand for digital assets generally and impact the valueProceeds
Purchases of and demand for, the digital assets heldequity securities by the Trust. Althoughissuer and affiliated purchasers —The table below sets forth information regarding DCG’s, the magnitudeparent company of the impactSponsor, open market purchases of theCOVID-19outbreak orShares of Grayscale Bitcoin Trust (OTCQX: GBTC) on a monthly basis during the occurrence of other epidemics or pandemics on the digital assets held by the Trust remains uncertain, the continued spread ofthree months ended March 31, 2021:
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 Programs |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
| |
January 1, 2021 - January 31, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
February 1, 2021 - February 28, 2021 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
March 1, 2021 - March 31, 2021 |
|
| 1,695,217 |
|
|
| 47.94 |
|
|
| 1,695,217 |
|
|
| 168.7 |
|
Total |
|
| 1,695,217 |
|
| $ | 47.94 |
|
|
| 1,695,217 |
|
| $ | 168.7 |
|
(1) | 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 increases DCG’s prior authorization to purchase of up to $250 million worth of Shares by $500 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. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
23
Item 6. Exhibits
Exhibit Number | Exhibit Description | |||
31.1* | ||||
31.2* | ||||
32.1* | ||||
32.2* | ||||
101.INS* | Inline XBRL Instance 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 |
24
Glossary of Defined Terms
In this Quarterly Report, each of the following quoted terms has the meanings set forth after such term:
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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/ | |||||
Name: | Michael Sonnenshein | |||||
Title: | ||||||
Member of the Board of Directors and Chief Executive Officer (Principal Executive Officer)* |
By: | /s/ Edward McGee | |||
Name: | Edward McGee | |||
Title: | ||||
Vice President, Finance (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. |
29