Filed Pursuant to Rule 424(b)(3)
Registration No. 333-257474
ARK 21SHARES BITCOIN ETF
SUPPLEMENT NO. 1 DATED MAY 13, 2024
TO THE PROSPECTUS DATED JANUARY 10, 2024
This prospectus supplement (this “Supplement”)
is part of and should be read in conjunction with the prospectus of Ark 21Shares Bitcoin ETF (the “Trust”), dated January
10, 2024 (the “Prospectus”). Unless otherwise defined herein, capitalized terms used in this Supplement shall have the same
meanings as in the Prospectus.
The purpose of this Supplement is to include the
Trust’s Quarterly Report on Form 10-Q for the period ended March 31, 2024.
Quarterly Report on Form 10-Q for the Period
ended March 31, 2023
On May 13, 2024, the Trust filed its Quarterly
Report on Form 10-Q for the period ended March 31, 2024 (the “Report”) with the Securities and Exchange Commission. The Report
(without exhibits) is attached to this Supplement.
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 period ended March 31, 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 41,785,000 outstanding shares
as of May 3, 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)
| | |
March 31,
2024 | | |
December 31,
2023 | |
| | |
(Unaudited) | | |
| |
| Assets | |
| | |
| |
| Investment in bitcoin, at fair value (cost $2,315,409) | |
$ | 3,160,732 | | |
$ | - | |
| Cash | |
| - | | |
| - | 1 |
| Capital shares receivable | |
| 27,610 | | |
| - | |
| Total assets | |
| 3,188,342 | | |
| - | 1 |
| | |
| | | |
| | |
| Liabilities | |
| | | |
| | |
| Bitcoin purchased payable | |
| 27,610 | | |
$ | - | |
| Sponsor’s fee payable | |
| 628 | | |
| - | |
| Other payable | |
| 71 | | |
| - | |
| Total liabilities | |
| 28,309 | | |
| - | |
| Net assets | |
$ | 3,160,033 | | |
$ | - | 1 |
| | |
| | | |
| | |
| Net assets consist of | |
| | | |
| | |
| Paid-in-capital | |
$ | 2,315,423 | | |
$ | - | 1 |
| Accumulated earnings (loss) | |
| 844,610 | | |
| - | |
| | |
$ | 3,160,033 | | |
$ | - | 1 |
| | |
| | | |
| | |
| Shares issued and outstanding, no par value, unlimited amount authorized | |
| 44,670,000 | | |
| 2 | |
| Net asset value per share | |
$ | 70.74 | | |
$ | 50.00 | |
| 1 | Amount rounds to less than $1,000. See Note 1 to the Unaudited
Notes to Financial Statements. |
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)
March 31, 2024* (Unaudited)
| | |
Quantity of
bitcoin | | |
Cost | | |
Fair Value | | |
% of Net
Assets | |
| Investment in bitcoin | |
| 44,667.3165 | | |
$ | 2,315,409 | | |
$ | 3,160,732 | | |
| 100.02 | % |
| Total investments | |
| 44,667.3165 | | |
$ | 2,315,409 | | |
$ | 3,160,732 | | |
| 100.02 | % |
| Liabilities in excess of other assets | |
| | | |
| | | |
| (699 | ) | |
| (0.02 | )% |
| Net assets | |
| | | |
| | | |
$ | 3,160,033 | | |
| 100.00 | % |
| * |
No comparative schedule has been provided as the Trust did not hold any bitcoin as of December 31, 2023. |
The accompanying notes are an integral part
of the Financial Statements.
ARK 21SHARES BITCOIN ETF
STATEMENT OF OPERATIONS
(Amounts in thousands)
| | |
For the
three months
ended
March 31,
2024* | |
| | |
(Unaudited) | |
| Expenses | |
| |
| Sponsor’s fee | |
$ | 721 | |
| Total expenses | |
| 721 | |
| Less waiver and reimbursement | |
| (93 | ) |
| Net expenses | |
| 628 | |
| Net investment loss | |
| (628 | ) |
| | |
| | |
| Realized and unrealized gain (loss) | |
| | |
| Net realized loss on investment in bitcoin | |
| (85 | ) |
| Net change in unrealized appreciation on investment in bitcoin | |
| 845,323 | |
| Net realized and unrealized gain | |
| 845,238 | |
| Net increase in net assets resulting from operations | |
$ | 844,610 | |
| * |
No comparative statement has been provided as this is the first fiscal year of the Trust’s operations. |
The accompanying notes are an integral part
of the Financial Statements.
ARK 21SHARES BITCOIN ETF
STATEMENT OF CHANGES IN NET ASSETS
(Amounts in thousands, except change in Shares
issued and redeemed)
| | |
For the
three months
ended
March 31,
2024* | |
| | |
(Unaudited) | |
| | |
| |
| Net assets, beginning of period | |
$ | - | 1 |
| Contributions for Shares issued | |
| 2,315,842 | |
| Distributions for Shares redeemed | |
| (419 | ) |
| Net investment loss | |
| (628 | ) |
| Net realized loss on investment in bitcoin | |
| (85 | ) |
| Net change in unrealized appreciation on investment in bitcoin | |
| 845,323 | |
| Net assets, end of period | |
$ | 3,160,033 | |
| | |
| | |
| Shares issued and redeemed | |
| | |
| Shares issued | |
| 44,680,000 | |
| Shares redeemed | |
| (10,002 | ) |
| Net increase in Shares issued | |
| 44,669,998 | |
| * |
No comparative statement has been provided as this is the first fiscal year of the Trust’s operations. |
| 1 | Amount rounds to less than $1,000. See Note 1 to the Unaudited
Notes to Financial Statements. |
The accompanying notes are an integral part
of the Financial Statements.
ARK 21Shares
Bitcoin ETF
Notes to
Financial Statements (Unaudited)
1. Organization
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 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 statement of assets
and liabilities and schedule of investments on March 31, 2024, and the statements of operations and changes in net assets for the
three months ended March 31, 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 months ended March 31, 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 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 | |
| March 31, 2024 | |
| | |
| | |
| | |
| |
| Assets | |
| | |
| | |
| | |
| |
| Investment in bitcoin | |
$ | 3,160,732 | | |
$ | 3,160,732 | | |
$ | – | | |
$ | – | |
| * | No comparative schedule has been provided as this 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 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 March 31, 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.
3. Fair Value of Bitcoin
The following represents the changes in quantity
of bitcoin and the respective fair value on March 31, 2024*:
(Amounts in thousands, except Quantity of bitcoin) | |
Quantity of bitcoin | | |
Fair Value | |
| Beginning balance as of January 1, 2024 | |
| – | | |
$ | – | |
| Bitcoin purchased | |
| 44,677.3165 | | |
| 2,315,842 | |
| Bitcoin sold | |
| (10.0000 | ) | |
| (419 | ) |
| Net realized loss on investment in bitcoin | |
| – | | |
| (14 | ) |
| Change in unrealized appreciation (depreciation) on investment in bitcoin | |
| – | | |
| 845,323 | |
| Ending balance as of March 31, 2024* | |
| 44,667.3165 | | |
$ | 3,160,732 | |
| * | No comparative table has been provided as this is the
first fiscal year of the Trust’s operations. |
4. Trust Expenses
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 is waiving 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
comes first.
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.
6. Related Parties
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 March 31, 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.
7. Financial Highlights*
Per Share Performance (for a Share outstanding throughout the period
presented)
| | |
For the
three months
ended | |
| | |
March 31,
2024* | |
| Net asset value per Share, beginning of period | |
$ | 50.00 | |
| Net investment loss on
investment in bitcoin1 | |
| (0.02 | ) |
| Net realized and unrealized gain on investment in
bitcoin | |
| 20.76 | |
| Net change in net assets from operations | |
| 20.74 | |
| Net asset value per Share, end of period | |
$ | 70.74 | |
| | |
| | |
| Total return, at net asset value2 | |
| 41.48 | % |
| | |
| | |
| Ratios
to average net assets3 | |
| | |
| Net investment loss | |
| (0.18 | )% |
| Gross Expenses | |
| 0.21 | % |
| Net Expenses | |
| 0.18 | % |
| * | No comparative financial statements have been provided as
this is the first fiscal year of the Trust’s operations. |
| 1 | Calculated using average Shares outstanding. |
| 2 | Total return is calculated based on the change in value
during the period and is not annualized. An individual shareholder’s total return and ratio may vary from the above total returns and ratios based on
the timing of contributions to and withdrawals from the Trust. |
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.
9. Indemnification
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.
10. Subsequent Events
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 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 is waiving 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
comes first.
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).
Results of Operations
As of March 31, 2024*, the
Trust had a net closing balance of 44,667.3165 bitcoins with a value of $3,160,731,678, based on the Index Price of $70,761.62 on March
31, 2024 (CME CF Bitcoin Reference Rate – New York Variant, non-GAAP methodology). As of March 31, 2024, the total fair value of
the Trust’s bitcoin was $3,160,731,678, based on the price of a bitcoin in the principal market (Coinbase) of $70,761.62 on March 31,
2024.
For the three months ended March 31, 2024*
Net realized and
unrealized gain on investment in bitcoin for the three months ended March 31, 2024, was $845,237,003 which includes a realized loss
of $(85,284) on the sale of bitcoins associated with the disposition of the initial seed creation shares, a loss for the removal of
bitcoin mark-to-market from the daily Sponsor’s Fee accrual, and a net change in unrealized appreciation on investment in
bitcoin of $845,322,287. Net realized and unrealized gain on investment in bitcoin for the period was driven by bitcoin price
appreciation from $46,666.89 per Bitcoin as of January 11, 2024, to $70,761.62 per bitcoin as of March 31, 2024. Net
increase in net assets resulting from operations was $844,609,344 for the three months ended March 31, 2024, which consisted of the
net realized and unrealized gain on investment in bitcoin, less the Sponsor’s Fee of $627,659.
| * | No comparative period has been provided as this is the
first fiscal 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 is waiving 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 comes first. 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 March
31, 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 March 31, 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. 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. 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.
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 Creation Units (comprising
10,002 Shares) during the quarter ended March 31, 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 be purchased | |
| January 1, 2024 - January 31, 2024 | |
| 10,002 | | |
$ | 41.90 | | |
| N/A | |
| February 1, 2024 – February 29, 2024 | |
| - | | |
$ | - | | |
| N/A | |
| March 1, 2024 - March 31, 2024 | |
| - | | |
$ | - | | |
| 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 March 31, 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: May
13, 2024 |
|
| |
|
| By: |
/s/
Ophelia Snyder |
|
| |
Ophelia
Snyder |
|
| |
Principal
Financial Officer and
Principal Accounting Officer |
|
| |
|
|
Date: May
13, 2024 |
|
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