Ark 21Shares Bitcoin ETF (ARKB) risk factors, FY2024 10-K

Other

1. 01Bitcoin is a relatively new technological innovation with a limited operating history
2. 02Limits on bitcoin supply
3. 03Spot markets on which bitcoin trades are relatively new and largely unregulated
4. 04Authorized Participants may act in the same or similar capacity for other competing products
5. 05Spot markets may be exposed to security breaches
6. 06Spot markets may be exposed to fraud and market manipulation
7. 07Over the past several years, a number of bitcoin spot markets have been closed or faced issues due to fraud. In many of these instances, the customers of such bitcoin spot markets were not compensated or made whole for the partial or complete losses of their account balances in such bitcoin exchanges
8. 08Spot markets may be exposed to wash trading
9. 09Spot markets may be exposed to front-running
10. 10The Sponsor will not have any strategy relating to the development of bitcoin and the Bitcoin network. However, a lack of expansion in usage of bitcoin and the Bitcoin network could adversely affect an investment in Shares
11. 11Irrevocable nature of blockchain-recorded transactions
12. 12The loss or destruction of a private key required to access bitcoin may be irreversible
13. 13The amount of bitcoin that may be held in the Trading Balance will be limited to the amount necessary to process a given creation or redemption transaction, as applicable, or to pay for Trust Expenses not assumed by the Sponsor in consideration for the Sponsor Fee
14. 14Loss of a critical banking relationship for, or the failure of a bank used by, the Trust or the Prime Broker could adversely impact the Trust’s ability to create or redeem Baskets, or could cause losses to the Trust
15. 15The Bitcoin Custodians and Prime Broker may act in the same or similar capacity for other competing products
16. 16The Prime Broker routes orders through Connected Trading Venues in connection with trading services under the Prime Broker Agreement. The loss or failure of any such Connected Trading Venues may adversely affect the Prime Broker’s business and cause losses for the Trust
17. 17A disruption of the Internet may affect Bitcoin operations, which may adversely affect the bitcoin industry and an investment in the Trust
18. 18Potential changes to the Bitcoin network’s protocols and software could, if accepted and authorized by the Bitcoin network community, adversely affect an investment in the Trust
19. 19Decentralized governance of the Bitcoin network could have a negative impact on the performance of the Trust
20. 20Anonymity and illicit financing risk
21. 21The actual or perceived use of bitcoin and other digital assets in illicit transactions, which may adversely affect the bitcoin industry and an investment in the Trust
22. 22The only digital asset to be held by the Trust will be bitcoin
23. 23With respect to any fork, airdrop or similar event, the Sponsor will cause the Trust to irrevocably abandon the Incidental Rights or IR Virtual Currency. In the event the Trust seeks to change this position, an application would need to be filed with the SEC by the Exchange seeking approval to amend its listing rules
24. 24Bitcoin is subject to cybersecurity risks, which could adversely affect an investment in the Trust or the ability of the Trust to operate
25. 25Other digital asset networks have been subject to malicious activity achieved through control of over 50% of the processing power on the network. Any similar attacks on the Bitcoin network could negatively impact the value of bitcoin and the value of the Shares
26. 26If miners expend less processing power on the Bitcoin network, it could increase the likelihood of a malicious actor obtaining control
27. 27Mathematical or technological advances could undermine the Bitcoin network’s consensus mechanism
28. 28Many digital asset networks face significant scaling challenges due to the fact that public blockchains generally face a trade-off between security and scalability
29. 29Bitcoin faces significant competition from other digital assets, as well as from other technologies or payment forms, such as Swift, ACH, remittance networks, credit cards and cash. There is no guarantee that bitcoin will become a dominant form of payments, store of value or method of exchange
30. 30Competition from central bank digital currencies (“CBDCs”) could adversely affect the value of bitcoin and other digital assets
31. 31Prices of bitcoin may be affected due to stablecoins, the activities of stablecoin issuers and their regulatory treatment
32. 32Given the role that stablecoins play in global digital asset markets, their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the market for bitcoin
33. 33Operational cost may exceed the award for solving blocks or transaction fees. Increased transaction fees may adversely affect the usage of the Bitcoin network
34. 34Once new bitcoin tokens are no longer awarded for adding a new block, miners will only have transaction fees to incentivize them, and as a result, it is expected that miners will need to be better compensated with higher transaction fees to ensure that there is adequate incentive for them to continue mining
35. 35Miners could act in collusion to raise transaction fees, which may adversely affect the usage of the Bitcoin network
36. 36As technology advances, miners may be unable to acquire the digital asset mining hardware necessary to develop and launch their operations. A decline in the bitcoin mining population could adversely affect the Bitcoin network and an investment in the Trust
37. 37If profit margins of bitcoin mining operations are not high, miners may elect to immediately sell bitcoin earned by mining, resulting in a reduction in the price of bitcoin that could adversely affect an investment in the Trust
38. 38Large-Scale Sales or Distributions
39. 39Congestion or delay in the Bitcoin network may delay purchases or sales of bitcoin by the Trust
40. 40Investment Related Risks
41. 41The NAV or the Principal Market NAV may not always correspond to the market price of bitcoin
42. 42Deviations between the Trust’s NAV and NAV per Share versus the Trust’s Principal Market NAV and Principal Market NAV per Share may occur
43. 43Owning Shares is different than directly owning bitcoin
44. 44The value of the Shares may be influenced by a variety of factors unrelated to the value of bitcoin
45. 45The Administrator is solely responsible for determining the value of the Trust’s bitcoin, the Trust’s NAV and the Trust’s Principal Market NAV. The value of the Shares may experience an adverse effect in the event of any errors, discontinuance or changes in such valuation calculations
46. 46Bitcoin Counterparties’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares
47. 47Selling activity associated with sales of bitcoin in connection with redemption orders may decrease the bitcoin prices, which will result in lower prices for the Shares. Decreases in bitcoin prices may also occur as a result of selling activity by other market participants
48. 48The inability of Bitcoin Counterparties to hedge their bitcoin exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares
49. 49Arbitrage transactions intended to keep the price of Shares closely linked to the price of bitcoin may be problematic if the process for the creation and redemption of Baskets encounters difficulties, which may adversely affect an investment in the Shares
50. 50Security threats and cyber-attacks could result in the halting of Trust operations and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the price of the Shares
51. 51The Bitcoin Custodians could become insolvent
52. 52The Trust is subject to risks due to its concentration of investments in a single asset
53. 53A lack of active trading markets for the Shares may result in losses on Shareholders’ investments at the time of disposition of Shares
54. 54Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
55. 55The amount of bitcoin represented by the Shares will continue to be reduced during the life of the Trust due to the transfer of the Trust’s bitcoin to pay for the Sponsor Fee and other liabilities
56. 56The development and commercialization of the Trust is subject to competitive pressures
57. 57A loss of confidence or breach of the Bitcoin Custodians may adversely affect the Trust and the value of an investment in the Shares
58. 58The Sponsor may need to find and appoint a replacement bitcoin custodian or prime broker quickly, which could pose a challenge to the safekeeping of the Trust’s bitcoin
59. 59The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Sub-Adviser, the Trustee, the Administrator, the Transfer Agent, the Bitcoin Custodians, or the Prime Broker
60. 60Intellectual property rights claims may adversely affect the Trust and the value of the Shares
61. 61The Index has a limited history

Risks related to pricing

1. 62Shareholders also should note that the size of the Trust in terms of total bitcoin held may change substantially over time and as Baskets are created and redeemed

Regulatory Risk

1. 63On March 17, 2022, Senators Elizabeth Warren, Jack Reed, Mark Warner, and Jon Tester introduced the Digital Asset Sanctions Compliance Enhancement Act in an attempt to ensure blacklisted Russian individuals and businesses do not use cryptocurrency to evade economic sanctions
2. 64Shareholders do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or commodity pools under the CEA
3. 65The Trust is not registered as an investment company under the 1940 Act, and the Sponsor believes that the Trust is not permitted or required to register under such act. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies
4. 66Future and current laws and regulations by a United States or foreign government or quasi-governmental agencies could have an adverse effect on an investment in the Trust
5. 67Future legal or regulatory developments may negatively affect the value of bitcoin or require the Trust or the Sponsor to become registered with the SEC or CFTC, which may cause the Trust to incur unforeseen expenses or liquidate

Tax Risk

1. 68The ongoing activities of the Trust may generate tax liabilities for Shareholders
2. 69The tax treatment of bitcoin and transactions involving bitcoin for United States federal income tax purposes may change
3. 70The tax treatment of bitcoin and transactions involving bitcoin for state and local tax purposes is not settled
4. 71A hard “fork” of the Bitcoin blockchain could result in Shareholders incurring a tax liability

Other Risks

1. 72The Exchange on which the Shares are listed may halt trading in the Trust’s Shares, which would adversely impact a Shareholder’s ability to sell Shares
2. 73The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the Shares
3. 74The market infrastructure of the bitcoin spot market could result in the absence of active Authorized Participants able to support the trading activity of the Trust, which would affect the liquidity of the Shares in the secondary market and make it difficult to dispose of Shares
4. 75Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect Shareholders’ investment in the Shares
5. 76The Sponsor and the Sub-Adviser each rely heavily on key personnel. The departure of any such key personnel could negatively impact the Trust’s operations and adversely impact an investment in the Trust
6. 77Shareholders have no right or power to take part in the management of the Trust. Accordingly, no investor should purchase Shares unless such investor is willing to entrust all aspects of the management of the Trust to the Trustee, the Sponsor and the Sub-Adviser
7. 78The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
8. 79Shareholders do not have the rights enjoyed by investors in certain other vehicles and may be adversely affected by a lack of statutory rights and by limited voting and distribution rights
9. 80Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
10. 81Shareholders may be adversely affected by an overstatement or understatement of the NAV or the Principal Market NAV calculation of the Trust due to the valuation methodology employed on the date of the NAV or the Principal Market NAV calculation