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 June 30, 2024
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 001-41910
ARK 21Shares Bitcoin ETF
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | | 87-6497023 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
21Shares US LLC
477 Madison Avenue, 6th Floor
New York, New York 10022
(646) 370-6016
(Address, including zip code, and telephone
number, including area code, of registrant’s primary executive offices)
| Title of each class: | | Trading Symbol(s) | | Name of each exchange on which registered: |
| Shares of Beneficial Interest of ARK 21Shares Bitcoin ETF | | ARKB | | Cboe BZX Exchange, Inc. |
Securities registered or to be registered pursuant to Section 12(g)
of the Act: None.
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 Rule 12b-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 elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in
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
The registrant had 48,705,000 outstanding shares as of
August 2, 2024.
STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This
interim report on Form 10-Q includes “forward-looking statements” that generally relate to future events or future performance.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,”
“expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “potential” or the negative of these terms or other comparable terminology. All statements (other than
statements of historical fact) included in this report that address activities, events or developments that will or may occur in the future,
including such matters as movements in the digital asset markets and indexes that track such movements, the Trust’s operations,
the Sponsor’s plans 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. These statements are based upon certain assumptions
and analyses the Sponsor and the Sub-Adviser have 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 and the Sub-Adviser’s expectations and predictions, however,
is subject to a number of risks and uncertainties, including the special considerations discussed in this report, general economic, market
and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory
bodies, and other world economic and political developments. Consequently, all the forward-looking statements made in this report
are qualified by these cautionary statements, and there can be no assurance that actual results or developments the Sponsor and the Sub-Adviser
anticipate to occur will be realized or, even if substantially realized, that they will result in the expected consequences to, or have
the expected effects on, the Trust’s operations or the value of its Shares.
Should one or more of these
risks discussed in “Risk Factors” or other uncertainties materialize, or should underlying assumptions prove incorrect, actual
outcomes may vary materially from those described in forward-looking statements. Forward-looking statements are made based on the Sponsor’s
and the Sub-Adviser’s beliefs, estimates and opinions on the date the statements are made, and neither the Trust, the Sponsor nor
the Sub-Adviser is under a duty or undertakes an obligation to update forward-looking statements if these beliefs, estimates and opinions
or other circumstances should change, other than as required by applicable laws. Moreover, neither the Trust, the Sponsor, the Sub-Adviser,
nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Investors are
therefore cautioned against placing undue reliance on forward-looking statements.
Emerging
Growth Company
The Trust is an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Trust
is an emerging growth company, unlike other public companies, it will not be required to, among other things: (i) provide an auditor’s
attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant
to Section 404(b) of the Sarbanes-Oxley Act of 2002; or (ii) comply with any new audit rules adopted by the Public Company Accounting
Oversight Board (“PCAOB”) after April 5, 2012, unless the SEC determines otherwise.
The Trust will cease to be
an “emerging growth company” upon the earliest of: (i) it having $1.235 billion or more in annual revenues, (ii) at
least $700 million in market value of Common Shares being held by non-affiliates, (iii) it issuing more than $1.0 billion
of non-convertible debt over a three-year period; or (iv) the last day of the fiscal year following the fifth anniversary
of its initial public offering.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the 1933 Act for complying with new or revised accounting standards. In other words, an
emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. The Trust intends to take advantage of the benefits of the extended transition period.
ARK 21Shares
Bitcoin ETF
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ARK 21SHARES BITCOIN ETF
STATEMENTS OF ASSETS AND LIABILITIES
(Amounts in thousands, except Share and per
Share amounts)
| | |
June 30,
2024 | | |
December 31,
2023 | |
| | |
(Unaudited) | | |
| |
| Assets | |
| | |
| |
Investment in bitcoin, at fair value (cost $ 2,548,333, and $ –, respectively) | |
$ | 2,850,345 | | |
$ | – | |
| Cash | |
| – | | |
| – | 1 |
| Bitcoin sold receivable | |
| 2,411 | | |
| – | |
| Capital shares receivable | |
| 45,211 | | |
| – | |
| Total assets | |
| 2,897,967 | | |
| – | 1 |
| | |
| | | |
| | |
| Liabilities | |
| | | |
| | |
| Bitcoin purchased payable | |
$ | 45,211 | | |
$ | – | |
| Capital shares payable | |
| 2,411 | | |
| – | |
| Sponsor’s fee payable | |
| 770 | | |
| – | |
| Total liabilities | |
| 48,392 | | |
| – | |
| Net assets | |
$ | 2,849,575 | | |
$ | – | 1 |
| | |
| | | |
| | |
| Net assets consist of | |
| | | |
| | |
Paid-in-capital | |
$ | 2,414,179 | | |
$ | – | 1 |
| Accumulated earnings (loss) | |
| 435,396 | | |
| – | |
| | |
$ | 2,849,575 | | |
$ | – | 1 |
| | |
| | | |
| | |
Shares issued and outstanding, no par value, unlimited amount authorized | |
| 46,050,000 | | |
| 2 | |
| Net asset value per share | |
$ | 61.88 | | |
$ | 50.00 | |
The accompanying notes are an integral part
of the Financial Statements.
ARK 21SHARES BITCOIN ETF
SCHEDULE OF INVESTMENT
(Amounts in thousands, except Quantity of bitcoin
and percentages)
June 30, 2024* (Unaudited)
| | |
Quantity of bitcoin | | |
Cost | | |
Fair Value | | |
% of Net Assets | |
| Investment in bitcoin | |
| 46,025.7971 | | |
$ | 2,548,333 | | |
$ | 2,850,345 | | |
| 100 .03 | % |
| Total investments | |
| 46,025.7971 | | |
$ | 2,548,333 | | |
$ | 2,850,345 | | |
| 100 .03 | % |
| Liabilities in excess of other assets | |
| | | |
| | | |
| (770 | ) | |
| (0 .03) | % |
| Net assets | |
| | | |
| | | |
$ | 2,849,575 | | |
| 100.00 | % |
The accompanying notes are an integral part
of the Financial Statements.
ARK 21SHARES BITCOIN ETF
STATEMENTS OF OPERATIONS
(Amounts in thousands)
| |
|
For the
three months
ended
June 30, 2024* |
|
|
For the
six months
ended
June 30, 2024* |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| Expenses |
|
|
|
|
|
|
| Sponsor’s fee |
|
$ |
1,555 |
|
|
$ |
2,276 |
|
| Total expenses |
|
|
1,555 |
|
|
|
2,276 |
|
| Less waiver and reimbursement |
|
|
– |
|
|
|
(93 |
) |
| Net expenses |
|
|
1,555 |
|
|
|
2,183 |
|
| Net investment loss |
|
|
(1,555 |
) |
|
|
(2,183 |
) |
| |
|
|
|
|
|
|
|
|
| Realized and change in unrealized gain
(loss) |
|
|
|
|
|
|
|
|
| Net realized gain on investment in bitcoin sold to pay Sponsor’s fee |
|
|
327 |
|
|
|
327 |
|
| Net realized gain on investment in bitcoin sold for redemptions |
|
|
135,325 |
|
|
|
135,240 |
|
| Net change in unrealized appreciation (depreciation) on investment in bitcoin |
|
|
(543,311 |
) |
|
|
302,012 |
|
| Net realized and
change in unrealized gain (loss) |
|
|
(407,659 |
) |
|
|
437,579 |
|
| Net increase (decrease) in net assets resulting from operations |
|
$ |
(409,214 |
) |
|
$ |
435,396 |
|
The accompanying notes are an integral part
of the Financial Statements.
ARK 21SHARES BITCOIN ETF
STATEMENTS OF CHANGES IN NET ASSETS
(Amounts in thousands, except change in Shares
issued and redeemed)
| |
|
For the
three months
ended
June 30,
2024* |
|
|
For the
six months
ended
June 30,
2024* |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| |
|
|
|
|
|
|
| Net assets, beginning of period |
|
$ |
3,160,033 |
|
|
$ |
- |
1 |
| Contributions for Shares issued |
|
|
875,834 |
|
|
|
3,191,676 |
|
| Distributions for Shares redeemed |
|
|
(777,078 |
) |
|
|
(777,497 |
) |
| Net investment loss |
|
|
(1,555 |
) |
|
|
(2,183 |
) |
| Net realized gain on investment in bitcoin sold to pay Sponsor’s fee |
|
|
327 |
|
|
|
327 |
|
| Net realized gain on investment in bitcoin sold for redemptions |
|
|
135,325 |
|
|
|
135,240 |
|
| Net change in unrealized appreciation (depreciation) on investment in
bitcoin |
|
|
(543,311 |
) |
|
|
302,012 |
|
| Net assets, end of period |
|
$ |
2,849,575 |
|
|
$ |
2,849,575 |
|
| |
|
|
|
|
|
|
|
|
| Shares issued and redeemed |
|
|
|
|
|
|
|
|
| Shares issued |
|
|
13,310,000 |
|
|
|
57,990,000 |
|
| Shares redeemed |
|
|
(11,930,000 |
) |
|
|
(11,940,000 |
) |
| Net increase in Shares issued |
|
|
1,380,000 |
|
|
|
46,050,000 |
|
The accompanying notes are an integral part
of the Financial Statements.
ARK
21Shares Bitcoin ETF
Notes
to Financial Statements (Unaudited)
The ARK 21Shares Bitcoin ETF
(the “Trust”) is a Delaware statutory trust, formed on June 22, 2021, pursuant to the Delaware Statutory Trust Act (“DSTA”).
The Trust operates pursuant to an Amended and Restated Trust Agreement (the “Trust Agreement”). Delaware Trust Company, a
Delaware trust company, is the trustee of the Trust (the “Trustee”). The Trust is managed and controlled by 21Shares US LLC
(the “Sponsor”). The Sponsor is a limited liability company formed in the state of Delaware on June 16, 2021, and is a wholly
owned subsidiary of Jura Pentium Inc., whose ultimate parent company is 21co Holdings Limited (formerly known as Amun Holdings Limited).
Coinbase Custody Trust Company, LLC (“Coinbase Custody”) (the “Custodian”) is the custodian for the Trust and
will hold all of the Trust’s bitcoin on the Trust’s behalf. The transfer agent (the “Transfer Agent”) and the
administrator for the Trust (the “Administrator”) is Bank of New York Mellon.
The Trust is an exchange-traded
fund (“ETF”) that issues units of beneficial interest (the “Shares”) representing fractional undivided beneficial
interests in its net assets that trade on the Cboe BZX Exchange, Inc. (the “Exchange”). The Shares were listed for trading
on the Exchange on January 11, 2024, under the ticker symbol “ARKB”.
The Trust’s investment
objective is to seek to track the performance of bitcoin, as measured by the performance of the CME CF Bitcoin Reference Rate—New
York Variant (the “Index”), adjusted for the Trust’s expenses and other liabilities. CF Benchmarks Ltd. is the administrator
for the Index (the “Index Provider”). The Index is designed to reflect the performance of bitcoin in U.S. dollars. In seeking
to achieve its investment objective, the Trust holds bitcoin at its Custodian and values its Shares daily based on the Index.
ARK Investment Management
LLC (the “Sub-Adviser”) is the sub-adviser of the Trust and provides assistance in the marketing of the Shares. The Trust’s
Shares are neither interests in nor obligations of the Sponsor, the Sub-Adviser, or the Trustee.
The Trust is an “emerging
growth company” as that term is used in the Securities Act of 1933, as amended (the “Securities Act”), and, as such,
the Trust may elect to comply with certain reduced public company reporting requirements.
On December 12, 2023, the
Sponsor, in its capacity as Seed Capital Investor, subject to conditions, purchased the initial Seed Creation Baskets comprising 2 Shares
at a per-Share price of $50.00, as described in “Seed Capital Investor.” Total proceeds to the Trust from the sale of these
Seed Creation Baskets were $100. Delivery of the Seed Creation Baskets was made on December 12, 2023. These Seed Creation Baskets were
redeemed for cash on or about January 5, 2024.
On January 9, 2024 (the “Seed
Capital Purchase Date”), the Seed Capital Investor purchased Seed Creation Baskets comprising 10,000 Shares (the “Initial
Seed Creation Baskets”) at a per-share price of $46.88. Total proceeds to the Trust from the sale of the Seed Creation Baskets were
$468,806.44. On January 9, 2024, the Trust purchased 10 bitcoins with the proceeds of the Seed Creation Baskets by transacting with a
Bitcoin Counterparty to acquire bitcoin on behalf of the Trust in exchange for cash provided by the Sponsor in its capacity as Seed Capital
Investor. These Seed Creation Baskets were redeemed for cash on or about January 19, 2024.
The statements of assets and
liabilities and schedule of investments on June 30, 2024, and the statements of operations and changes in net assets for the three and
six months ended June 30, 2024, have been prepared on behalf of the Trust and are unaudited. 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 and results
of operations for the three and six months ended June 30, 2024, and for all interim periods presented have been made. In addition, interim
period results are not necessarily indicative of results for a full-year period.
The fiscal year of the Trust
is December 31st.
| 2. | Significant Accounting Policies |
Basis of Accounting
The financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP” or “GAAP”).
The Trust qualifies as an
investment company solely for accounting purposes and not for any other purpose and follows the accounting and reporting guidance under
the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial
Services - Investment Companies, but is not registered, and is not required to be registered, as an investment company under the Investment
Company Act of 1940, as amended. The Trust uses fair value as its method of accounting for bitcoin in accordance with its classification
as an investment company for accounting purposes.
The preparation of the financial
statements in conformity with US GAAP requires the Trust to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results may differ materially from such estimates as additional information becomes available or actual amounts may become determinable.
Should actual results differ from those previously recognized, the recorded estimates will be revised accordingly with the impact reflected
in the operating results of the Trust in the reporting period in which they become known.
Cash
Cash includes non-interest
bearing, non-restricted cash maintained with one financial institution that does not exceed U.S. federally insured limits.
Investment Valuation
US GAAP defines fair value
as the price the Trust would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants
at the measurement date. The Trust’s policy is to value investments held at fair value.
The Trust identifies and determines
the bitcoin principal market (or in the absence of a principal market, the most advantageous market) for GAAP purposes consistent with
the application of the fair value measurement framework in FASB ASC 820. A principal market is the market with the greatest volume and
activity level for the asset or liability. The determination of the principal market will be based on the market with the greatest volume
and level of activity that can be accessed. The Trust obtains relevant volume and level of activity information and based on initial analysis
will select an exchange market as the Trust’s principal market. The net asset value (“NAV”) and NAV per Share will be
calculated using the fair value of bitcoin based on the price provided by this exchange market, as of 4:00 p.m. ET on the measurement
date for GAAP purposes. The Trust will update its principal market analysis periodically and as needed to the extent that events have
occurred, or activities have changed in a manner that could change the Trust’s determination of the principal market.
Various inputs are used in
determining the fair value of assets and liabilities. Inputs may be based on independent market data (“observable inputs”)
or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting
of three broad levels for financial reporting purposes. The level of a value determined for an asset or liability within the fair value
hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels
of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in
active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices
included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered
to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally
from or corroborated by observable market data by correlation or other means; and
Level 3: Unobservable inputs, including
the Trust’s assumptions used in determining the fair value of investments, where there is little or no market activity for the asset
or liability at the measurement date.
| | |
Amount at | | |
Fair Value Measurement Using | |
| (Amounts in thousands) | |
Fair Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| June 30, 2024 | |
| | |
| | |
| | |
| |
| Assets | |
| | |
| | |
| | |
| |
| Investment in bitcoin | |
$ | 2,850,345 | | |
$ | 2,850,345 | | |
$ | – | | |
$ | – | |
| * | No
comparative schedule has been provided as the Trust did not hold any bitcoin as of December 31, 2023. |
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
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. The Trust records its investments 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.
Calculation of Net Asset Value (NAV)
and NAV per Share
On each day other than a Saturday
or Sunday, or a day on which Cboe BZX Exchange is closed for regular trading (a “Business Day”), as soon as practicable after
4:00 p.m. (Eastern Time), the net asset value of the Trust is obtained by subtracting all accrued fees, expenses and other liabilities
of the Trust from the fair value of the bitcoin and other assets held by the Trust. The Trustee computes the net asset value per Share
by dividing the net asset value of the Trust by the number of Shares outstanding on the date the computation is made.
Federal Income Taxes
The Sponsor and the Trustee
will treat the Trust as a “grantor trust” for U.S. federal income tax purposes. Although not free from doubt due to the lack
of directly governing authority, if the Trust operates as expected, the Trust should be classified as a “grantor trust” for
U.S. federal income tax purposes and the Trust itself should not be subject to U.S. federal income tax. 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 sells bitcoin (for example,
to pay fees or expenses), such a sale is a taxable event to Shareholders. Upon a Shareholder’s sale of its Shares, the Shareholder
will be treated as having sold the pro rata share of the bitcoin held in the Trust at the time of the sale and may recognize gain or loss
on such sale. The Sponsor has reviewed the tax positions as of June 30, 2024, and has determined that no provision for income tax is required
in the Trust’s financial statements.
Recently Issued Accounting Pronouncement
In December 2023, the FASB
issued Accounting Standards Update (“ASU”) 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):
Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”). ASU 2023-08 is intended to improve the accounting for certain
crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized
in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring
disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period. ASU 2023-08 is effective
for annual and interim reporting periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial
statements that have not yet been issued. The Trust adopted this new guidance with no material impact on its financial statements and
disclosures as the Trust uses fair value as its method of accounting for bitcoin in accordance with its classification as an investment
company for accounting purposes.
The following represents the changes in quantity
of bitcoin and the respective fair value on June 30, 2024 *:
| (Amounts in thousands, except Quantity of bitcoin) |
|
Quantity of bitcoin |
|
|
Fair Value |
|
| Beginning balance as of January 1, 2024 |
|
|
– |
|
|
$ |
– |
|
| Bitcoin purchased |
|
|
57,979.9144 |
|
|
|
3,191,635 |
|
| Bitcoin sold |
|
|
(11,933.3010 |
) |
|
|
(778,869 |
) |
| Net realized gain on investment in bitcoin sold to pay Sponsor’s fee |
|
|
(20.8163 |
) |
|
|
327 |
|
| Net realized gain on investment in bitcoin sold for redemptions |
|
|
– |
|
|
|
135,240 |
|
| Change in unrealized appreciation on investment in bitcoin |
|
|
– |
|
|
|
302,012 |
|
| Ending balance as of June 30, 2024* |
|
|
46,025.7971 |
|
|
$ |
2,850,345 |
|
The Trust pays the unitary Sponsor Fee of 0.21% of the Trust’s
bitcoin holdings. The Sponsor Fee is paid by the Trust to the Sponsor as compensation for services performed under the Trust Agreement.
The Sponsor agreed to waive the entire Sponsor Fee for (i) a six-month period which commenced on January 11, 2024 (the day the Trust's
Shares were initially listed on the Exchange), or (ii) the first $1 billion of Trust assets, whichever came first. The Trust assets exceeded
$1 billion prior to the end of the six month period, at which time the waiver period ended.
The Sponsor has agreed to
pay all operating expenses (except for litigation expenses and other extraordinary expenses) out of the Sponsor Fee. Operating expenses
assumed by the Sponsor include (i) fees to the Sub-Adviser; (ii) the Marketing Fee, (iii) fees to the administrator, if any, (iv) fees
to the bitcoin Custodian, (v) fees to the Transfer Agent, (vi) fees to the Trustee, (vii) the fees and expenses related to any future
listing, trading or quotation of the Shares on any listing exchange or quotation system (including legal, marketing and audit fees and
expenses), (viii) ordinary course legal fees and expenses but not litigation-related expenses, (ix) audit fees, (x) regulatory fees, including,
if applicable, any fees relating to the registration of the Shares under the 1933 Act or Exchange Act, (xi) printing and mailing costs;
(xii) costs of maintaining the Trust’s website and (xiii) applicable license fees (each, a “Sponsor-paid Expense,” and
together, the “Sponsor-paid Expenses”), provided that any expense that qualifies as an Additional Trust Expense (as defined
below) will be deemed to be an Additional Trust Expense and not a Sponsor-paid Expense.
The Sponsor will not, however,
assume certain extraordinary, 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 Shareholders, any indemnification of the bitcoin Custodian, Administrator or other agents, service
providers or counter-parties of the Trust, the fees and expenses related to the listing, 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”). Of the Sponsor-paid Expenses, ordinary course legal fees and expenses shall be subject to a cap of $100,000 per
annum. In the Sponsor’s sole discretion, all or any portion of a Sponsor-paid Expense may be re-designated as an Additional Trust
Expense.
To the extent that the Sponsor
does not voluntarily assume expenses, they will be the responsibility of the Trust. The Sponsor also pays the costs of the Trust’s
organization and offering. The Trust is not obligated to repay any such costs related to the Trust’s organization and offering paid
by the Sponsor.
| 5. | Creation and Redemption of Shares |
The Trust creates and redeems
Shares on a continuous basis but only in Creation Units consisting of 5,000 Shares or multiples thereof. Only Authorized Participants,
which are registered broker-dealers who have entered into written agreements with the Sponsor and the Administrator, can place orders.
The Trust engages in bitcoin transactions for converting cash into bitcoin (in association with purchase orders) and bitcoin into cash
(in association with redemption orders). The Trust conducts its bitcoin purchase and sale transactions by, in its sole discretion, choosing
to trade directly with third parties (each, a “bitcoin Trading Counterparty”), who are not registered broker-dealers pursuant
to written agreements between such bitcoin Trading Counterparties and the Trust, or choosing to trade through the Prime Broker acting
in an agency capacity with third parties through its Coinbase Prime service pursuant to the Prime Broker Agreement. A bitcoin Trading
Counterparty may be an affiliate of an Authorized Participant.
The Authorized Participants
deliver only cash to create Shares and receive only cash when redeeming Shares. Further, Authorized Participants will not directly or
indirectly purchase, hold, deliver, or receive bitcoin as part of the creation or redemption process or otherwise direct the Trust or
a third-party with respect to purchasing, holding, delivering, or receiving bitcoin as part of the creation or redemption process.
The Trust creates Shares by
receiving bitcoin from a third-party that is not the Authorized Participant and the Trust—not the Authorized Participant—is
responsible for selecting the third-party to deliver the bitcoin. Further, the third-party will not be acting as an agent of the Authorized
Participant with respect to the delivery of the bitcoin to the Trust or acting at the direction of the Authorized Participant with respect
to the delivery of the bitcoin to the Trust. The Trust redeems Shares by delivering bitcoin to a third-party that is not the Authorized
Participant and the Trust—not the Authorized Participant—is responsible for selecting the third-party to receive the bitcoin.
Further, the third-party will not be acting as an agent of the Authorized Participant with respect to the receipt of the bitcoin from
the Trust or acting at the direction of the Authorized Participant with respect to the receipt of the bitcoin from the Trust. The third-party
is unaffiliated with the Trust and the Sponsor.
| | |
Three Months
Ended
June 30,
2024* | | |
Six Months
Ended
June 30,
2024* | |
| Activity in Capital Transactions Issued and Redeemed: | |
| | |
| |
| Shares issued | |
| 13,310,000 | | |
| 57,990,000 | |
| Shares redeemed | |
| (11,930,000 | ) | |
| (11,940,000 | ) |
| Net Change in Capital Transactions Issued and Redeemed | |
| 1,380,000 | | |
| 46,050,000 | |
| (Amounts in thousands) | |
Three Months
Ended
June 30,
2024* | | |
Six Months
Ended
June 30,
2024* | |
| Activity in Capital Transactions Issued and Redeemed: | |
| | | |
| | |
| Shares issued | |
| 875,834 | | |
| 3,191,676 | |
| Shares redeemed | |
| (777,078 | ) | |
| (777,497 | ) |
| Net Change in Capital Transactions Issued and Redeemed | |
| 98,756 | | |
| 2,414,179 | |
Bitcoin purchased payable
represents the quantity of bitcoin purchased for the creation of Shares where the bitcoin has not yet settled. Generally, bitcoin is transferred within two business days of the trade date.
| | |
June 30, | |
| (Amounts in thousands) | |
2024* | |
| Bitcoin purchased payable | |
$ | 45,211 | |
Bitcoin sold receivable represents
the quantity of bitcoin sold for the redemption of Shares where the bitcoin has not yet been settled. Generally, bitcoin is transferred within two business days of the trade date.
| | |
June 30, | |
| (Amounts in thousands) | |
2024* | |
| Bitcoin sold receivable | |
$ | 2,411 | |
The Sponsor is a related party
to the Trust. The Trust’s operations are supported by its Sponsor, who is in turn supported by its parent company and affiliated
companies and external service providers.
As of June 30, 2024, the Sponsor
owned zero Shares of the Trust.
The Sponsor arranged for the
creation of the Trust and is responsible for the ongoing registration of the Shares for their public offering in the United States and
the listing of Shares on the Exchange.
Per Share Performance (for a Share
outstanding throughout the periods presented)
| |
|
For the
three months
ended
June 30,
2024* |
|
|
For the
six months
ended
June 30,
2024* |
|
| |
|
(Unaudited) |
|
|
(Unaudited) |
|
| |
|
|
|
|
|
|
| Net asset value per Share, beginning of period |
|
$ |
70.74 |
|
|
$ |
50.00 |
|
| Net investment loss on investment in bitcoin(1) |
|
|
(0.03 |
) |
|
|
(0.06 |
) |
| Net realized and change in
unrealized gain (loss) on investment in bitcoin |
|
|
(8.83 |
) |
|
|
11.94 |
|
| Net change in net assets from operations |
|
|
(8.86 |
) |
|
|
11.88 |
|
| Net asset value per Share, end of period |
|
$ |
61.88 |
|
|
$ |
61.88 |
|
| |
|
|
|
|
|
|
|
|
| Total return, at net asset value(2) |
|
|
(12.52 |
)% |
|
|
23.76 |
% |
| |
|
|
|
|
|
|
|
|
| Ratio
to average net assets(3) |
|
|
|
|
|
|
|
|
| Net investment loss |
|
|
(0.21 |
)% |
|
|
(0.19 |
)% |
| Gross expenses |
|
|
0.21 |
% |
|
|
0.20 |
% |
| Net expenses |
|
|
0.21 |
% |
|
|
0.19 |
% |
| 8. | Commitments and Contingent Liabilities |
In the normal course of business,
the Trust may enter into contracts that contain a variety of general indemnification clauses. The Trust’s maximum exposure under
these arrangements is unknown as this would involve future claims that may be made against the Trust which have not yet occurred and cannot
be predicted with any certainty. However, the Sponsor believes the risk of loss under these arrangements to be remote.
The Sponsor will not be liable
to the Trust, the Trustee or any Shareholder for any action taken or for refraining from taking any action in good faith, or for errors
in judgment or for depreciation or loss incurred by reason of the sale of any bitcoin or other assets of the Trust. However, the preceding
liability exclusion will not protect the Sponsor against any liability resulting from its own gross negligence, bad faith, or willful
misconduct.
The Sponsor and each of its
shareholders, members, directors, officers, employees, affiliates, and subsidiaries will be indemnified by the Trust and held harmless
against any losses, liabilities or expenses incurred in the performance of its duties under the Declaration of Trust without gross negligence,
bad faith, or willful misconduct. The Sponsor may rely in good faith on any paper, order, notice, list, affidavit, receipt, evaluation,
opinion, endorsement, assignment, draft, or any other document of any kind prima facie properly executed and submitted to it by the Trustee,
the Trustee’s counsel or by any other person for any matters arising under the Declaration of Trust. The Sponsor shall in no event
be deemed to have assumed or incurred any liability, duty, or obligation to any Shareholder or to the Trustee other than as expressly
provided for in the Declaration of Trust. Such indemnity includes payment from the Trust of the costs and expenses incurred in defending
against any indemnified claim or liability under the Declaration of Trust.
The Trustee will not be liable
or accountable to the Trust or any other person or under any agreement to which the Trust or any series of the Trust is a party, except
for the Trustee’s breach of its obligations pursuant to the Declaration of Trust or its own willful misconduct, bad faith or gross
negligence. The Trustee and each of the Trustee’s officers, affiliates, directors, employees, and agents will be indemnified by
the Trust from and against any losses, claims, taxes, damages, reasonable expenses, and liabilities incurred with respect to the creation,
operation or termination of the Trust, the execution, delivery or performance of the Declaration of Trust or the transactions contemplated
thereby; provided that the indemnified party acted without willful misconduct, bad faith or gross negligence.
The Trust has evaluated subsequent events and transactions
for potential recognition or disclosure through the date the financial statements were issued and has determined that there are no material
events that would require disclosure in the financial statements.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
This information should
be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Form 10-Q. This Form 10-Q contains
“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, and such forward-looking statements involve risks and uncertainties. All statements
(other than statements of historical fact) included in this Form 10-Q that address activities, events or developments that may occur in
the future, the Trust’s operations, the Sponsor’s plans and references to the Trust’s future success and other similar
matters are forward-looking statements. Words such as “could,” “would,” “may,” “expect,”
“intend,” “estimate,” “predict,” and variations on such words or negatives thereof, and similar expressions
that reflect our current views with respect to future events and Trust performance, are intended to identify such forward-looking statements.
These forward-looking statements are only predictions, subject to risks and uncertainties that are difficult to predict and many of which
are outside of our control, and actual results could differ materially from those discussed. Forward-looking statements involve risks
and uncertainties that could cause actual results or outcomes to differ materially from those expressed therein. We express our estimates,
expectations, beliefs, and projections in good faith and believe them to have a reasonable basis. However, we make no assurances that
management’s estimates, expectations, beliefs, or projections will be achieved or accomplished. These forward-looking statements
are based on assumptions about many important factors that could cause actual results to differ materially from those in the forward-looking
statements. We do not intend to update any forward-looking statements even if new information becomes available or other events occur
in the future, except as required by the federal securities laws.
Organization and Trust Overview
The ARK 21Shares Bitcoin ETF
(the “Trust”) is a Delaware statutory trust, formed on June 22, 2021, pursuant to the Delaware Statutory Trust Act (“DSTA”).
The Trust operates pursuant to an Amended and Restated Trust Agreement (the “Trust Agreement”). The Trust is not registered
as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and is not a
commodity pool for purposes of the Commodity Exchange Act (“CEA”). The Trust is managed and controlled by 21Shares US LLC
(the “Sponsor”). The Sponsor is a limited liability company formed in the state of Delaware on June 16, 2021, and is a wholly
owned subsidiary of Jura Pentium Inc., whose ultimate parent company is 21co Holdings Limited (formerly known as Amun Holdings Limited).
The Sponsor is not subject to regulation by the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator
with respect to the Trust, or a commodity trading advisor with respect to the Trust. The Trust is an exchange-traded fund (“ETF”)
that issues units of beneficial interest (the “Shares”) representing fractional undivided beneficial interests in its net
assets that trade on the Cboe BZX Exchange, Inc. (the “Exchange”). The Shares are listed for trading on the Exchange under
a ticker symbol “ARKB”.
On December 12, 2023, the
Sponsor, in its capacity as Seed Capital Investor, subject to conditions, purchased the initial Seed Creation Baskets comprising 2 Shares
at a per-Share price of $50.00, as described in “Seed Capital Investor.” Total proceeds to the Trust from the sale of these
Seed Creation Baskets were $100. Delivery of the Seed Creation Baskets was made on December 12, 2023. These Seed Creation Baskets were
redeemed for cash on or about January 5, 2024.
On January 9, 2024 (the “Seed
Capital Purchase Date”), the Seed Capital Investor purchased Seed Creation Baskets comprising 10,000 Shares (the “Initial
Seed Creation Baskets”) at a per-share price of $46.88. Total proceeds to the Trust from the sale of the Seed Creation Baskets were
$468,806.44. On January 9, 2024, the Trust purchased 10 bitcoins with the proceeds of the Seed Creation Baskets by transacting with a
Bitcoin Counterparty to acquire bitcoin on behalf of the Trust in exchange for cash provided by the Sponsor in its capacity as Seed Capital
Investor. These Seed Creation Baskets were redeemed for cash on or about January 19, 2024.
The Trust’s investment
objective is to seek to track the performance of bitcoin, as measured by the performance of the CME CF Bitcoin Reference Rate—New
York Variant (the “Index”), adjusted for the Trust’s expenses and other liabilities. CF Benchmarks Ltd. is the administrator
for the Index (the “Index Provider”). The Index is designed to reflect the performance of bitcoin in U.S. dollars. In seeking
to achieve its investment objective, the Trust holds bitcoin at its Custodian and values its Shares daily based on the Index. The Trust
is a passive investment vehicle and is not a leveraged product. The Sponsor does not actively manage the bitcoin held by the Trust.
The Trust issues Shares only
in Creation Units of 5,000 or multiples thereof. Creation Units are issued and redeemed in exchange for cash. Individual Shares will not
be redeemed by the Trust but are listed and traded on the Exchange under the ticker symbol “ARKB.” The Trust issues Shares
in Creation Units on a continuous basis at the applicable NAV per Share on the creation order date.
The Trust pays the unitary
Sponsor Fee of 0.21% of the Trust’s bitcoin holdings. The Sponsor Fee is paid by the Trust to the Sponsor as compensation for services
performed under the Trust Agreement. The Sponsor agreed to waive the entire Sponsor Fee for (i) a six-month period which commenced on January 11, 2024 (the day the Trust's
Shares were initially listed on the Exchange), or (ii) the first $1 billion of Trust assets, whichever came first. The Trust assets exceeded
$1 billion prior to the end of the six month period, at which time the waiver period ended.
The Trust is an “emerging
growth company” as that term is used in the Securities Act of 1933, as amended (the “Securities Act”), and, as such,
the Trust may elect to comply with certain reduced public company reporting requirements.
The NAV of the Trust is used
by the Trust in its day-to-day operations to measure the net value of the Trust’s assets. The NAV is calculated on each business
day and is equal to the aggregate value of the Trust’s assets less its liabilities based on the Index price. In determining the
NAV of the Trust on any business day, the Administrator calculates the price of the bitcoin held by the Trust as of 4:00 p.m. ET on such
day. The Administrator also calculates the “NAV per Share” of the Trust, which equals the NAV of the Trust divided by the
number of outstanding Shares. For purposes of making these calculations, a business day means any day other than a day when the Exchange
is closed for regular trading.
In addition to calculating
NAV and NAV per Share, for purposes of the Trust’s financial statements, the Trust determines the Principal Market NAV and Principal
Market NAV per Share on each valuation date for such financial statements. The determination of the Principal Market NAV and Principal
Market NAV per Share is identical to the calculation of NAV and NAV per Share, respectively, except that the value of bitcoin is determined
using the fair value of bitcoin based on the price in the bitcoin market that the Trust considers its “principal market” as
of 4:00 p.m. ET on the valuation date, rather than using the Index.
NAV and NAV per Share are
not measures calculated in accordance with GAAP and are not intended as substitute for Principal Market and Principal Market NAV per Share,
respectively.
Critical Accounting Estimates
The financial statements and
accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations.
These estimates and assumptions affect the Trust’s application of accounting policies. Below is a summary of accounting policies
on cash and investment valuation. There were no material estimates involving a significant level of estimation uncertainty that had or
are reasonably likely to have had a material impact on the Trust’s financial condition used in the preparation of the financial
statements. In addition, please refer to Note 2 to the Financial Statements included in this report for further discussion of the Trust’s
accounting policies.
Cash
Cash includes non-interest
bearing, non-restricted cash maintained with one financial institution that does not exceed U.S. federally insured limits.
Investment Valuation
The Trust’s policy is
to value investments held at fair value. The Trust follows the provisions of ASC 820, Fair Value Measurements (“ASC 820”).
ASC 820 provides guidance for determining fair value and requires increased disclosure regarding the inputs to valuation techniques used
to measure fair value. ASC 820 determines fair value to be the price that would be received for bitcoin in a current sale, which assumes
an exit price resulting from an orderly transaction between market participants on the measurement date. ASC 820-10 requires the assumption
that bitcoin is sold in its principal market to market participants (or in the absence of a principal market, the most advantageous market).
The Trust utilizes an exchange traded price from the Trust's principal market for bitcoin as of 4:00 p.m. ET on the Trust's financial
statement measurement date.
Results of Operations
For the Three Months ending on June 30, 2024*
The Trust’s net asset
value decreased from $3,160,033,182 on March 31, 2024 to $2,849,574,261 on June 30, 2024. The decrease in the Trust’s net asset
value resulted primarily from a decrease in bitcoin price of 12.48% (from $70,761.62 per bitcoin as of March 31, 2024 to $61,929.29 per
bitcoin as of June 30, 2024) and an increase of number of shares outstanding from 44,670,000 on March 31 2024 to 46,500,000 on June 30,
2024.
The Trust’s net decrease
in net assets resulting from operations for the quarter ended June 30, 2024 was $(409,214,298). This number is largely the result of a
change in unrealized depreciation on investment in bitcoin of $(543,310,275), which was partially offset by a realized gain of $327,388
on the sale of bitcoin for purposes of distributing to the Sponsor as the Sponsor’s fee and, net realized gain on investment in
bitcoin sold for redemptions of $135,324,029. The Trust expenses for the quarter were $1,555,440, relating to the Sponsor's fees.
For the Six Months ending June 30, 2024*
The Trust’s net asset
value increased from $100 on December 31, 2023 to $2,849,574,261 on June 30, 2024. The increase in the Trust’s net asset value resulted
primarily from an increase in the price of bitcoin of 32.70% (from $46,666.89 per bitcoin on January 11, 2024 to $61,929.29 per bitcoin
on June 30, 2024) and a net increase in the number of shares outstanding of 46,049,998 from December 31, 2023 to June 30, 2024.
The Trust’s net increase
in net assets resulting from operations for the six months ended June 30, 2024 was $435,395,046. This was the result of a change in unrealized
depreciation on investment in bitcoin of $302,012,012, a net realized gain of $327,388 on the sale of bitcoins for purposes of distributing
to the Sponsor as the Sponsor’s fee, and net realized gain on investment in bitcoin sold for redemptions of $135,238,745. The Trust expenses for the six month period were $2,183,099, relating to the Sponsor’s fees.
| * | No prior year comparative period has been provided as
this is the first year of the Trust’s operations. |
Liquidity and Capital Resources
The Trust is not aware of
any trends, demands, commitments, events, or uncertainties that are reasonably likely to result in material changes to its liquidity needs.
The Trust’s only ordinary recurring expense is the fee paid to the Sponsor at an annual rate of 0.21% of the daily net asset value
of the Trust. The Sponsor agreed to waive the entire Sponsor Fee for (i) a six-month period which commenced on January 11, 2024 (the day the Trust's
Shares were initially listed on the Exchange), or (ii) the first $1 billion of Trust assets, whichever came first. The Trust assets exceeded
$1 billion prior to the end of the six month period, at which time the waiver period ended. In exchange
for the Sponsor’s fee, the Sponsor has agreed to assume the ordinary fees and expenses incurred by the Trust, including but not
limited to the following: fees charged by the Sub-Adviser, Administrator, the Custodians, Transfer Agent and the Trustee, the Marketing
Fee, Cboe BZX Exchange listing fees, typical maintenance and transaction fees of the DTC, SEC registration fees, printing and mailing
costs, website fees, tax reporting fees, audit fees, license fees and expenses, up to $100,000 per annum in ordinary legal fees and expenses.
The Sponsor bears expenses in connection with the Trust’s organization and initial offering costs.
The Sponsor is not required
to pay any extraordinary or non-routine expenses. Extraordinary expenses are fees and expenses which are unexpected or unusual in nature,
such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses
also include material expenses which are not currently anticipated obligations of the Trust. The Trust will be responsible for the payment
of such expenses to the extent any such expenses are incurred. Routine operational, administrative, and other ordinary expenses are not
deemed extraordinary expenses. The Trust will sell bitcoin on an as-needed basis to pay the Sponsor’s fee.
Item 3. Quantitative and Qualitative Disclosures
about Market Risks
We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this
item.
Item 4. Controls and Procedures
The duly authorized officers
of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would
perform if the Trust had any officers, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have
concluded that the disclosure controls and procedures of the Trust were effective as of the end of the period covered by this report to
provide reasonable assurance that information required to be disclosed in the reports that the Trust files or submits under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the applicable
rules and forms, and that it is accumulated and communicated to the duly authorized officers of the Sponsor performing functions equivalent
to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, as appropriate
to allow timely decisions regarding required disclosure.
There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention
or overriding of the controls and procedures.
Changes in Internal Control over Financial
Reporting
During the quarter ended June 30, 2024, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and
15(d)-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II – OTHER INFORMATION:
Item 1. Legal Proceedings
From time to time, the Trust
may be a party to certain legal proceedings in the ordinary course of business. As of June 30, 2024, the Trust was not subject to any
material legal proceedings, nor, to our knowledge, are any material legal proceeding threatened against the Trust.
Item 1A. Risk Factors
You should carefully consider
the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K filed on March 26, 2024, for the
period ended December 31, 2023, which could materially affect our business, financial condition or future results. Other
than as described herein, there have been no material changes in our risk factors from those disclosed in our 2023 Annual Report
on Form 10-K.
The risks described in our
Annual Report on Form 10-K are not the only risks facing the Trust. You should also consider any
risks and uncertainties described under the caption “Risk Factors” in any applicable prospectus, prospectus supplement, registration
statement or other document that we file with the SEC before or after the date of this prospectus that is incorporated by reference herein. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
Limits on bitcoin supply.
Under the source code that
governs the Bitcoin network, the supply of new bitcoin is mathematically controlled so that the number of bitcoin grows at a limited rate
pursuant to a pre-set schedule. The number of bitcoin awarded for solving a new block is automatically halved after every 210,000
blocks are added to the Bitcoin blockchain, approximately every 4 years. Currently, the fixed reward for solving a new block is 3.125
bitcoin per block. This deliberately controlled rate of bitcoin creation means that the number of bitcoin in existence will increase at
a controlled rate until the number of bitcoin in existence reaches the pre-determined 21 million bitcoin. However, the 21 million
supply cap could be changed in a hard fork. As of November 2023, approximately 19 million bitcoin were outstanding and the date
when the 21 million Bitcoin limitation will be reached is estimated to be the year 2140.
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.
The trading prices of many
digital assets, including bitcoin, have experienced extreme volatility in recent periods and may continue to do so. For instance, there
were steep increases in the value of certain digital assets, including bitcoin, over the course of 2021, and multiple market observers
asserted that digital assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022
in digital asset trading prices, including for bitcoin. These episodes of rapid price appreciation followed by steep drawdowns have occurred
multiple times throughout bitcoin’s history, including in 2011, 2013-2014, and 2017-2018, before repeating again in 2021-2022.
Over the course of 2023-2024, bitcoin prices continued to exhibit extreme volatility.
Extreme volatility may persist,
and the value of the Shares may significantly decline in the future without recovery. The digital asset markets may still be experiencing
a bubble or may experience a bubble again in the future. For example, in the first half of 2022, each of Celsius Network, Voyager Digital
Ltd., and Three Arrows Capital declared bankruptcy, resulting in a loss of confidence in participants of the digital asset ecosystem and
negative publicity surrounding digital assets more broadly. In November 2022, FTX Trading Ltd. (“FTX”), one of the largest
digital asset exchanges by volume at the time, halted customer withdrawals amid rumors of the company’s liquidity issues and likely
insolvency, which were subsequently corroborated by its CEO. Shortly thereafter, FTX’s CEO resigned, and FTX and many of its
affiliates filed for bankruptcy in the United States, while other affiliates have entered insolvency, liquidation, or similar proceedings
around the globe, following which the U.S. Department of Justice brought criminal fraud and other charges, and the SEC and CFTC brought
civil securities and commodities fraud charges, against certain of FTX’s and its affiliates’ senior executives, including
its former CEO, who was found guilty of these criminal charges in November 2023. In addition, several other entities in the digital
asset industry filed for bankruptcy following FTX’s bankruptcy filing, such as BlockFi Inc. and Genesis Global Capital, LLC (“Genesis”).
In response to these events (collectively, the “2022 Events”), the digital asset markets have experienced extreme price volatility
and other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence
in the digital asset markets. These events have also negatively impacted the liquidity of the digital asset markets as certain entities
affiliated with FTX engaged in significant trading activity. If the liquidity of the digital asset markets continues to be negatively
impacted by these events, digital asset prices, including bitcoin, may continue to experience significant volatility or price declines,
and confidence in the digital asset markets may be further undermined. In addition, regulatory and enforcement scrutiny has increased,
including from, among others, the U.S. Department of Justice, the SEC, the CFTC, the White House and Congress, as well as state regulators
and authorities. These events are continuing to develop, and the full facts are continuing to emerge. It is not possible to predict at
this time all of the risks that they may pose to the Trust, its service providers or to the digital asset industry as a whole.
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. The Trust is not actively managed and will not take any actions to
take advantage, or mitigate the impacts, of volatility in the price of bitcoin.
The Bitcoin network
faces scaling challenges and efforts to increase the volume of transactions may not be successful.
Many digital asset networks
face significant scaling challenges due to the fact that public blockchains generally face a tradeoff between security and scalability.
As of July 2017, bitcoin
could handle, on average, five to seven transactions per second. For several years, participants in the Bitcoin ecosystem debated
potential approaches to increasing the average number of transactions per second that the Bitcoin network could handle. As of August 2017,
the Bitcoin network was upgraded with a technical feature known as “segregated witness” that, among other things, could potentially
approximately double the transactions per second that can be handled on-chain. More importantly, segregated witness also enables so-called second
layer solutions, such as the Lightning Network or payment channels, which could potentially allow faster transaction settlement.
An increasing number of wallets
and digital asset intermediaries, such as bitcoin spot markets, have begun supporting segregated witness and the Lightning Network, or
similar technology. The Lightning Network is an open-source decentralized network that enables instant off-Bitcoin blockchain
transfers of the ownership of bitcoin without the need of a trusted third party. The system utilizes bidirectional payment channels that
consist of multi-signature addresses. One on-blockchain transaction is needed to open a channel and another on-blockchain transaction
can close the channel. Once a channel is open, value can be transferred instantly between counterparties, who are engaging in real bitcoin
transactions without broadcasting them to the Bitcoin network. New transactions will replace previous transactions and the counterparties
will store everything locally as long as the channel stays open to increase transaction throughput and reduce computational burden on
the Bitcoin network.
Liquidity risk
The ability of the Trust or
a Bitcoin Counterparty to buy or sell bitcoin may be adversely affected by limited trading volume, lack of a market maker in the digital
asset markets, or legal restrictions. It is also possible that a bitcoin spot market or governmental authority may suspend or restrict
trading in bitcoin altogether. Therefore, it may not always be possible to execute a buy or sell order at the desired price or to liquidate
an open position due to market conditions on spot markets, regulatory issues affecting bitcoin or other issues affecting counterparties.
Bitcoin is a new asset with a very limited trading history. Therefore, the markets for bitcoin may be less liquid and more volatile than
other markets for more established products.
Shares of the Trust are listed
and traded on the Exchange. There is no certainty that there will be liquidity available on the Exchange or that the market price will
be in line with the NAV or the Principal Market NAV at any given time. There is also no guarantee that the Shares of the Trust will remain
listed or traded on the Exchange.
As the use of digital asset
networks increases without a corresponding increase in transaction processing speed of the networks, average fees and settlement times
can increase significantly. Bitcoin’s network has been, at times, at capacity, which has led to increased transaction fees. During
the period from January 1, 2017, to January 31, 2021, average bitcoin transaction fees increased from $0.39 per transaction
to $11.56 per transaction, with a high of $54.83 per transaction on December 12, 2017.
Increased fees and decreased
settlement speeds could preclude certain use cases for bitcoin (e.g., micropayments), and can reduce demand for and the price of bitcoin,
which could adversely impact the value of the Shares. There is no guarantee that any of the mechanisms in place or being explored for
increasing the scale of settlement of transactions in bitcoin will be effective, or how long these mechanisms will take to become effective,
which could adversely impact an investment in the Shares.
The lack of active trading
markets for the Shares may result in losses on Shareholders’ investments at the time of disposition of Shares.
Although Shares of the Trust
are publicly listed and traded on an exchange, there can be no guarantee that an active trading market for the Shares will be maintained.
If Shareholders need to sell their Shares at a time when no active market for them exists, the price Shareholders receive for their Shares,
assuming that Shareholders are able to sell them, may be lower than the price that Shareholders would receive if an active market did
exist and, accordingly, a Shareholder may suffer losses.
The development and
commercialization of the Trust is subject to competitive pressures.
The Trust and the Sponsor
face competition with respect to the creation of competing products, such as exchange-traded products offering exposure to the spot
bitcoin market or other digital assets. In January 2024, the SEC approved several exchange-traded bitcoin products, and many
of such products, including the Trust, could fail to acquire substantial assets, or fail to retain acquired assets due to competition
and/or market conditions.
The Sponsor’s competitors
may have greater financial, technical and human resources than the Sponsor. Smaller or early-stage companies may also prove to be
effective competitors, particularly through collaborative arrangements with large and established companies. The Trust’s competitors
may also charge a substantially lower fee than the Sponsor Fee in order to achieve initial market acceptance and scale. Accordingly, the
Sponsor’s competitors may commercialize a competing product more rapidly or effectively than the Sponsor is able to, which could
adversely affect the Sponsor’s competitive position and the likelihood that the Trust will achieve market acceptance, and could
have a detrimental effect on the scale and sustainability of the Trust and the Sponsor’s ability to generate meaningful revenues
from the Trust.
If the Trust fails to achieve
sufficient scale due to competition, the Sponsor may have difficulty raising sufficient revenue to cover the costs associated with launching
and maintaining the Trust, and such shortfalls could impact the Sponsor’s ability to properly invest in robust ongoing operations
and controls of the Trust to minimize the risk of operating events, errors, or other forms of losses to the Shareholders. In addition,
the Trust may also fail to attract adequate liquidity in the secondary market due to such competition, resulting in a sub-standard number
of Authorized Participants willing to make a market in the Shares, which in turn could result in a significant premium or discount in
the Shares for extended periods and the Trust’s failure to reflect the performance of the price of bitcoin.
There can be no assurance
that the Trust will grow to or maintain an economically viable size. There is no guarantee that the Sponsor will maintain a commercial
advantage relative to competitors offering similar products. Whether or not the Trust and the Sponsor are successful in achieving the
intended scale for the Trust may be impacted by a range of factors, such as the Trust’s timing in entering the market and its fee
structure relative to those of competitive products.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
| c) | The Trust does not purchase Shares directly from its Shareholders. In connection with its redemption of
Creation Units held by Authorized Participants, the Trust redeemed 2,386 Creation Units (comprising 11,930,000 Shares) during the quarter
ended June 30, 2024. The following table summarizes the redemptions by Authorized Participants during the period: |
| Period | |
Total Shares
Redeemed | | |
Average
Price Per
Share | | |
Maximum
number of
Shares that may
yet be purchased |
| April 1, 2024 - April 30, 2024 | |
| 3,435,000 | | |
$ | 64.13 | | |
N/A |
| May 1, 2024 - May 31, 2024 | |
| 3,175,000 | | |
$ | 63.02 | | |
N/A |
| June 1, 2024 - June 30, 2024 | |
| 5,320,000 | | |
$ | 67.05 | | |
N/A |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
No officers or directors of
the Sponsor have adopted, modified or terminated trading plans under either a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement (as such
terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933) for the three-month period ended June 30, 2024.
Item 6. Exhibits.
Listed below are the exhibits,
which are filed as part of this quarterly report on Form 10-Q (according to the number assigned to them in Item 601 of Regulation
S-K):
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
| ARK 21Shares Bitcoin ETF (Registrant) |
|
| |
|
| By: 21Shares US LLC, its Sponsor |
|
| |
|
| By: |
/s/ Hany Rashwan |
|
| |
Hany Rashwan |
|
| |
Chief Executive Officer |
|
| |
(Principal Executive Officer) |
|
| |
|
|
| Date: August 9, 2024 |
|
| |
|
| By: |
/s/ Ophelia Snyder |
|
| |
Ophelia Snyder |
|
| |
Principal Financial Officer and Principal Accounting Officer |
|
| |
|
|
| Date: August 9, 2024 |
|
20
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In connection with the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2024 (the “Report”) of ARK 21Shares Bitcoin ETF (the “Registrant”),
as filed with the Securities and Exchange Commission on the date hereof, I, Hany Rashwan, the Chief Executive Officer of 21Shares US LLC,
Sponsor of the Registrant, hereby certify, to the best of my knowledge, that:
In connection with the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2024 (the “Report”) of ARK 21Shares Bitcoin ETF (the “Registrant”),
as filed with the Securities and Exchange Commission on the date hereof, I, Ophelia Snyder, the President of 21Shares US LLC, Sponsor
of the Registrant, hereby certify, to the best of my knowledge, that: