Ark 21Shares Bitcoin ETF (ARKB) risk factors, FY2025 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 unregulated24% rewritten
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-running68% rewritten
10. 10The market value of bitcoin is subject to momentum pricingNew
11. 11The 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
12. 12The failure or poor performance of, or perceptions of risk or negative publicity around one or more of the protocols based on the Bitcoin network or that make use of bitcoin may adversely affect demand for bitcoin, the price of bitcoin, or the price of the SharesNew
13. 13Irrevocable nature of blockchain-recorded transactions50% rewritten
14. 14The loss or destruction of a private key required to access bitcoin may be irreversible41% rewritten
15. 15The 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
16. 16Loss 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
17. 17The Bitcoin Custodians and the Prime Broker may act in the same or similar capacity for other competing products
18. 18The 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
19. 19A disruption of the Internet may affect Bitcoin operations, which may adversely affect the bitcoin industry and an investment in the Trust
20. 20Potential 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
21. 21Decentralized governance of the Bitcoin network could have a negative impact on the performance of the Trust
22. 22Anonymity and illicit financing risk
23. 23In accordance with their regulatory obligations, the Authorized Participants conduct customer due diligence and enhanced due diligence on their counterparties, which enable them to determine each counterparty’s AML and other risks and assign an appropriate risk ratingNew
24. 24The actual or perceived use of bitcoin and other digital assets in illicit transactions may adversely affect the bitcoin industry and an investment in the Trust
25. 25The only digital asset to be held by the Trust will be bitcoin89% rewritten
26. 26Bitcoin is subject to cybersecurity risks, which could adversely affect an investment in the Trust or the ability of the Trust to operate
27. 27Other 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
28. 28If miners expend less processing power on the Bitcoin network, it could increase the likelihood of a malicious actor obtaining control
29. 29Mathematical or technological advances could undermine the Bitcoin network’s consensus mechanism
30. 30Many digital asset networks face significant scaling challenges due to the fact that public blockchains generally face a trade-off between security and scalability22% rewritten
31. 31Bitcoin 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 exchange34% rewritten
32. 32Competition from central bank digital currencies (“CBDCs”) could adversely affect the value of bitcoin and other digital assets
33. 33Prices of bitcoin may be affected due to stablecoins, the activities of stablecoin issuers and their regulatory treatment
34. 34Given 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
35. 35Operational cost may exceed the award for solving blocks or transaction fees, and increased transaction fees may adversely affect the usage of the Bitcoin network
36. 36Once 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
37. 37Miners could act in collusion to raise transaction fees, which may adversely affect the usage of the Bitcoin network
38. 38As 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
39. 39If 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
40. 40Large-scale sales or distributions
41. 41Congestion or delay in the Bitcoin network may delay purchases or sales of bitcoin by the Trust
42. 42Investment related risks
43. 43The NAV or the Principal Market NAV may not always correspond to the market price of bitcoin
44. 44Deviations between the Trust’s NAV and NAV per Share versus the Trust’s Principal Market NAV and Principal Market NAV per Share may occur
45. 45Owning Shares is different from directly owning bitcoin
46. 46The value of the Shares may be influenced by a variety of factors unrelated to the value of bitcoin
47. 47The 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
48. 48Bitcoin Counterparties’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares
49. 49Selling 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
50. 50The inability of Bitcoin Counterparties to hedge their bitcoin exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares30% rewritten
51. 51Arbitrage 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
52. 52Security 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
53. 53The Bitcoin Custodians could become insolvent
54. 54The Trust is subject to risks due to its concentration of investments in a single asset
55. 55A lack of active trading markets for the Shares may result in losses on Shareholders’ investments at the time of disposition of Shares
56. 56Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
57. 57The 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
58. 58The development and commercialization of the Trust is subject to competitive pressures
59. 59A loss of confidence in or breach of a Bitcoin Custodian may adversely affect the Trust and the value of an investment in the Shares38% rewritten
60. 60The Sponsor may need to find and appoint a replacement custodian or prime broker quickly, which could pose a challenge to the safekeeping of the Trust’s bitcoin
61. 61The 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
62. 62Intellectual property rights claims may adversely affect the Trust and the value of the Shares31% rewritten
63. 63Amendment of Trust Agreement without shareholder consentNew
64. 64By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust AgreementNew
65. 65The Index has a limited history

Risks related to pricing

1. 66Shareholders 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. 67Bitcoin’s status as being offered or sold as a “security” under U.S. federal securities laws remains unsettledNew
2. 68There is a lack of consensus regarding the regulation of digital assets, including bitcoinNew
3. 69In March 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 digital assets to evade economic sanctions21% rewritten
4. 70Shareholders 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
5. 71The 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
6. 72Future 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 Trust37% rewritten
7. 73Future 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. 74The ongoing activities of the Trust may generate tax liabilities for Shareholders21% rewritten
2. 75The tax treatment of bitcoin and transactions involving bitcoin for United States federal income tax purposes may change
3. 76The tax treatment of bitcoin and transactions involving bitcoin for state and local tax purposes is not settled
4. 77A hard “fork” of the Bitcoin blockchain could result in Shareholders incurring a tax liability
5. 78The intended tax treatment of the Trust will limit the flexibility of the Trust’s investment decisionsNew

Other Risks

1. 79The 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. 80The 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. 81The 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. 82Shareholders 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. 83The 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. 84Shareholders 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. 85The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
8. 86Shareholders 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 rights22% rewritten
9. 87Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
10. 88Shareholders 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
11. 89Shareholders may be adversely affected by the amendment of the Trust Agreement without shareholder consentNew