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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. 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. 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. 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. Level 1. Level 2. Level 3. Fair Value of Bitcoin. Bitcoin is held by the Custodian on behalf of the Trust and is carried at fair value. As of June 30, , and December 31, , the Trust held , The following represents the changes in quantity of Bitcoin and the respective fair value:. Balance at January 1, Bitcoin contributed. Bitcoin distributed for Sponsor's Fee, related party.
Balance at December 31, Balance at June 30, Creations and Redemptions of Shares. At June 30, and December 31, , 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 p. Each Share represented approximately 0. The cost basis of investments in Bitcoin recorded by the Trust is the fair value of Bitcoin, as determined by the Trust, at p.
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.
At this time, the Trust is not operating a redemption program and is not accepting redemption requests. Income Taxes. As of January 1, , 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, , 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, , 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. Accordingly, the Sponsor takes the position that the Trust is properly treated as a grantor trust for U. Assuming that the Trust is a grantor trust, the Trust will not be subject to U.
If the Trust were not properly classified as a grantor trust, the Trust might be classified as a partnership for U. However, due to the uncertain treatment of digital currencies, including forks, airdrops and similar occurrences for U. If the Trust were classified as a partnership for U.
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. In that event, the Trust would be subject to entity-level U. As of and during the periods ended June 30, and December 31, , the Trust did not have a liability for any unrecognized tax amounts.
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 June 30, or December 31, Related Parties. The Trust considers the following entities, their directors, and employees to be related parties of the Trust: DCG, Genesis, and Grayscale.
As of June 30, and December 31, , 12,, and 12,, Shares of the Trust were held by related parties of the Trust, respectively. In accordance with the Trust Agreement governing the Trust, the Trust pays a fee to the Sponsor, calculated as 2. The amount of Bitcoin payable in respect of each daily U. For purposes of these financial statements, the U. In such circumstances, the Sponsor or its delegate i will instruct the Custodian to.
For the three and six months ended June 30, and , the Sponsor did not pay any Additional Trust Expenses on behalf of the Trust. 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.
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.
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.
Three Months Ended June 30, Six Months Ended June 30, Bitcoins: Opening balance , , , , Creations 83, 12, , 23, Sponsor's Fee, related party 1, 1, 3, 2, Closing balance , , , , Accrued but unpaid Sponsor's Fee, related party - - - - Net closing balance , , , , Number of Shares: Opening balance ,, ,, ,, ,, Creations 87,, 12,, ,, 23,, Closing balance ,, ,, ,, ,, Bitcoin Fair Value Balance at January 1, , Commission File Number 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 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. Last business day. As we can easily see, the Internet has brought us the capability to understand fresh concepts and information in the very same way that we could only dream of before. Quantity of 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 , and the Sponsor may be required to register as an investment adviser under the Investment Advisers Act of If the Sponsor determines not to comply with such additional regulatory and registration requirements, the Sponsor will terminate the Trust.
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 peer-to-peer network, and as such, the Trust is subject to operational risk.
A risk also exists with respect to previously unknown technical vulnerabilities, which may adversely affect the value of Bitcoin. The Trust relies on third party service providers to perform certain functions essential to its operations.
Financial Highlights Per Share Performance. Per Share Data:. Net asset value, beginning of period. Net increase in net assets from investment operations:. Net realized and unrealized gain. Net asset value, end of period. Total return. Ratios to average net assets:. Ratios of net investment loss and expenses to average net assets have been annualized. Total return is calculated assuming an initial investment made at the net asset value at the beginning of the period and assuming redemption on the last day of the period and has been annualized.
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. 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. Subsequent Events. There are no known eve nts that have occurred that require disclosure other than that which has already been disclosed in these notes to the financial statements.
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. 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.
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. While an investment in the Shares is not a direct investment in Bitcoin, the Shares are designed to provide investors with a cost-effective and convenient way to gain investment exposure to Bitcoin. The Trust is not managed like a business corporation or an active investment vehicle. Critical Accounting Policies and Estimates. 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 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.
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. Investment Company Considerations. Review of Financial Results unaudited. All amounts in the following table and the subsequent paragraphs, except per Share, Bitcoin and price of Bitcoin amounts, are in thousands.
Net realized and unrealized gain on investment in Bitcoin. Off-Balance Sheet Arrangements. The Trust is not a party to any off-balance sheet arrangements.