CoinShares Bitcoin ETF (BRRR) risk factors, FY2025 10-K

Other

1. 01Risk Factors Related to the Bitcoin Network and Bitcoins
2. 02Recent developments in the digital asset economy have led to extreme volatility and disruption in digital asset markets, a loss of confidence in participants of the digital asset ecosystem, significant negative publicity surrounding digital assets broadly and market-wide declines in liquidity
3. 03Both hard forks and software upgrades to address scaling may cause confusion or may not result in needed improvements, each of which could have a negative impact on the value of an investment in the Shares
4. 04The scheduled creation of newly mined bitcoin and its subsequent sale may cause the price of bitcoin to decline, which could negatively affect an investment in the Trust
5. 05The prevailing level of transaction fees may adversely affect the usage of the Bitcoin Network
6. 06The loss or destruction of a private key required to access bitcoin may be irreversible. A Custodian’s loss of access to a private key associated with the Trust’s bitcoin could adversely affect an investment in the Shares
7. 07Bitcoin transactions are irrevocable and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely affect the value of the Shares
8. 08A temporary or permanent “fork” of the Blockchain could adversely affect an investment in the Trust
9. 09In the event of a hard fork of the Bitcoin Network, the Sponsor will, if permitted by the terms of the Trust Agreement, use its discretion to determine which network should be considered the appropriate network for the Trust’s purposes, and in doing so may adversely affect the value of the Shares
10. 10In the event of a hard fork of the Bitcoin Network, a Custodian’s operations may be interrupted or subject to additional security risks that could disrupt the Trust’s ability to process creations and redemptions of Shares or otherwise threaten the security of the Trust’s Bitcoin Holdings
11. 11Coinbase serves as the Custodian and Broker for several competing exchange-traded bitcoin products, which could adversely affect the Trust’s operations and ultimately the value of the Shares
12. 12Shareholders may not receive the benefits of any forks or “airdrops.”
13. 13Any Incidental Rights may result in a tax liability to the Trust and its Shareholders, if not successfully disclaimed by the Trust. Incidental Rights may result in an adverse interpretation regarding the Trust’s ability to receive grantor trust treatment under the Code
14. 14Adoption of new laws and regulations, or changes to existing laws and regulations, applicable to bitcoin could negatively affect the value of bitcoin
15. 15Bitcoin mining activities are energy-intensive, which may restrict the geographic locations of miners, have a negative environmental impact and consequently affect the price of bitcoin
16. 16As 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
17. 17Anonymity and illicit financing risk
18. 18Future and current regulations by a United States or foreign government or quasi-governmental agencies could have an adverse effect on an investment in the Trust
19. 19Future regulations may require the Trust or the Sponsor to become registered, which may cause the Trust to liquidate
20. 20Bitcoin may also be subject to regulation in foreign jurisdictions, the effect of any such regulation which is unknown
21. 21Risks Associated with Bitcoin Trading Markets
22. 22The investment objective of the Trust is to provide exposure to the value of the Trust’s Bitcoin Holdings, less the Trust’s liabilities (including estimated accrued expenses). The price of bitcoin has fluctuated widely and may continue to experience significant price fluctuations
23. 23The platforms on which users trade bitcoin are relatively new and, in some cases, largely unregulated, and, therefore, may be more exposed to fraud and security breaches than established, regulated exchanges for other financial assets or instruments, which could have a negative impact on the performance of the Trust
24. 24The value of bitcoin may be subject to momentum pricing whereby the current bitcoin price may account for speculation regarding future appreciation in value. Momentum pricing may result in greater volatility and adversely affect an investment in the Shares
25. 25The value of the Shares relates directly to the value of the bitcoins held by the Trust and fluctuations in the price of bitcoins could materially and adversely affect an investment in the Shares
26. 26Due to the unregulated nature and lack of transparency surrounding the operations of Bitcoin Exchanges, the marketplace may lose confidence in Bitcoin Exchanges, upon which the Trust is dependent
27. 27Bitcoin trading venues that are regulated typically must comply with minimum net worth, cybersecurity, and AML requirements, but are not typically required to protect customers to the same extent as regulated securities exchanges or futures exchanges
28. 28Operational problems or failures by bitcoin trading venues and fluctuations in bitcoin prices may reduce confidence in these venues or in bitcoin generally, which could adversely affect the price of bitcoin and therefore adversely affect an investment in the Shares
29. 29Since there is no limit on the number of bitcoins that the Trust may acquire, the Trust itself, as it grows, may have an impact on the supply and demand of bitcoins that ultimately may affect the price of the Shares in a manner unrelated to other factors affecting the global market for bitcoins
30. 30The Shares may trade at a discount or premium in the trading price relative to the Trust’s Bitcoin Holdings per Share as a result of non-concurrent trading hours between Nasdaq and the Bitcoin Exchange Market
31. 31If bitcoin prices on the Bitcoin Exchange Market move negatively during hours when Nasdaq is closed, trading prices on Nasdaq may “gap” down at market open
32. 32Bitcoin Exchanges are subject to the risk of fraud and manipulation
33. 33Bitcoin Exchanges may be exposed to front-running
34. 34Bitcoin Exchanges may be exposed to wash trading
35. 35A possible “short squeeze” due to a sudden increase in demand for the Shares that largely exceeds supply may lead to price volatility in the Shares
36. 36Purchasing activity in the Bitcoin Exchange Market associated with Basket creations or redemptions may affect the Bitcoin Index Price and Share trading prices, adversely affecting an investment in the Shares
37. 37An investment in the Shares may be adversely affected by competition from other methods of investing in bitcoins
38. 38The Bitcoin Index Price may be affected by the sale of other digital currency financial vehicles that invest in and track the price of bitcoins
39. 39The impact of geopolitical or economic events on the supply and demand for bitcoins is uncertain but could motivate large-scale sales of bitcoins, which could result in a reduction in the Bitcoin Index Price and adversely affect an investment in the Shares
40. 40As the Sponsor and its management have no meaningful history of operating an investment vehicle like the Trust, their experience may be inadequate or unsuitable to manage the Trust
41. 41The value of the Shares could decrease if unanticipated operational or trading problems arise
42. 42The Shares may trade at a price that is at, above or below the Trust’s Bitcoin Holdings per Share and any discount or premium in the trading price relative to the Trust’s Bitcoin Holdings per Share may widen as a result of non-concurrent trading hours
43. 43The Trust is a passive investment vehicle. The Trust is not actively managed and will be affected by a general decline in the price of bitcoin
44. 44Arbitrage transactions intended to keep the price of Shares closely linked to the price of bitcoin may be problematic if the process for the purchase and redemption of Baskets encounters difficulties, which may adversely affect an investment in the Shares
45. 45The inability of Authorized Participants and market makers to hedge their bitcoin exposure may adversely affect the liquidity of Shares and the value of an investment in the Shares
46. 46The Authorized Participants serve in such capacity for several competing exchange-traded bitcoin products, which could adversely affect the market for the Shares
47. 47The postponement, suspension or rejection of creation or redemption orders may adversely affect an investment in the Shares
48. 48The Trust could experience unforeseen difficulties in operating and maintaining key elements of its technical infrastructure
49. 49The Trust’s and the Custodians’ ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping of the Trust’s bitcoins
50. 50Security threats to the Bitcoin Account could result in the halting of Trust operations, the suspension of redemptions, 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. 51A loss of confidence or breach in the Trust’s security and technology policies may adversely affect the Trust and the value of an investment in the Shares
52. 52Bitcoin transactions are irrevocable and stolen or incorrectly transferred bitcoins may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely affect an investment in the Shares
53. 53The Trust’s bitcoins may be subject to loss, damage, theft or restriction on access
54. 54If the Trade Credits are not available or become exhausted, the Trust may face delays in buying or selling bitcoin that may adversely impact Shareholders; if the Trust does not repay the Trade Credits on time, its assets may be liquidated by the Trade Credit Lender and its affiliates
55. 55Loss of a critical banking relationship for, or the failure of a bank used by, the Prime Broker could adversely impact the Trust’s ability to create or redeem Baskets, or could cause losses to the Trust
56. 56Bitcoins held by the Trust are not subject to FDIC or SIPC protections
57. 57The Custodians’ limited liability under the Custody Agreements may impair the ability of the Trust to recover losses relating to its bitcoins and any recovery may be limited, even in the event of fraud, to the market value of the bitcoins at the time the fraud is discovered
58. 58The Trust may not have adequate sources of recovery if its bitcoins are lost, stolen or destroyed
59. 59If a Custody Agreement is terminated or a Custodian fails to provide services as required, the Sponsor may need to find and appoint a replacement custodian, which could pose a challenge to the safekeeping of the Trust’s bitcoins, and the Trust’s ability to continue to operate may be adversely affected
60. 60The Sponsor may need to find and appoint a replacement custodian quickly, which could pose a challenge to the safekeeping of the Trust’s bitcoin
61. 61The Custodians and Cash Custodian could become insolvent
62. 62The liquidity of the Shares may be affected if Authorized Participants cease to perform their obligations under the Authorized Participant Agreements
63. 63There is no guarantee that an active trading market for the Shares will continue to develop
64. 64The Trust may be required to terminate and liquidate at a time that is disadvantageous to Shareholders
65. 65The Trust Agreement includes a provision that restricts the right of a beneficial owner of a statutory trust from bringing a derivative action
66. 66The Administrator is solely responsible for determining the value of the bitcoins, and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares
67. 67Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting an investment in the Shares
68. 68The Trust’s delivery or sale of bitcoins to pay expenses or other operations of the Trust could result in Shareholders incurring tax liability without an associated distribution from the Trust
69. 69If the Trust incurs extraordinary expenses in U.S. dollars, the Trust will sell bitcoins to pay these expenses. The sale of the Trust’s bitcoins to pay expenses at a time of low bitcoin prices could adversely affect the value of the Shares
70. 70The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Transfer Agent, the Administrator or the Custodians under the Trust Documents
71. 71Intellectual property rights claims may adversely affect the Trust and an investment in the Shares
72. 72Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act or the protections afforded by the CEA
73. 73The Trust is not registered as an investment company under the Investment Company Act and the Sponsor believes that the Trust is not required to register under such Act. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies
74. 74Regulatory changes or actions may alter the nature of an investment in the Shares or restrict the use of bitcoins or the operation of the Bitcoin Network or the Bitcoin Exchange Market in a manner that adversely affects an investment in the Shares
75. 75If the SEC were to determine that bitcoin is a security, the Trust and the Sponsor would be subject to additional regulatory and compliance requirements under U.S. federal securities laws, including the Investment Company Act and, with respect to the Sponsor, the Investment Advisers Act
76. 76Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital assets
77. 77It may be illegal now, or in the future, to acquire, own, hold, sell or use bitcoins in one or more countries, and ownership of, holding or trading in Shares may also be considered illegal and subject to sanctions
78. 78Regulatory changes or interpretations could cause the Trust and the Sponsor to register and comply with new regulations, resulting in potentially extraordinary, nonrecurring expenses to the Trust
79. 79The treatment of the Trust for U.S. federal income tax purposes is uncertain
80. 80The treatment of bitcoins for U.S. federal income tax purposes is uncertain
81. 81Future developments in the tax treatment of bitcoins could adversely affect an investment in the Shares
82. 82The Index, BRR and BRTI each have a limited history
83. 83The Trust utilizes the Index to establish its NAV and NAV per Share. In the event that the Index is incorrectly calculated, is not timely calculated or changes its calculation methodology in the future, such an occurrence may adversely impact an investment in the Shares or the Trust’s operations
84. 84The Benchmark Administrator could experience systems failures or errors
85. 85The Index could fail to track the global bitcoin price and a failure of the Index could adversely affect the value of the Shares
86. 86The Sponsor can discontinue using the Index and use a different pricing or valuation methodology instead
87. 87The Index price used to calculate the value of the Trust’s bitcoin may be volatile, adversely affecting the value of the Shares
88. 88The Index is subject to the limitations of its methodology and the bitcoin market

Risks Related to Pricing

1. 89The Trust’s portfolio will be priced, including for purposes of determining the NAV, based on the Index. The price of bitcoin in U.S. dollars or in other currencies available from other data sources may not be equal to the prices used to calculate the NAV
2. 90Shareholders 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
3. 91The value of bitcoin as reflected by the Index may be subject to momentum pricing due to speculation regarding future appreciation in value, leading to greater volatility which could adversely affect an investment in the Shares
4. 92Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no fiduciary duties to the Trust and its Shareholders, which may permit them to favor their own interests to the detriment of the Trust and its Shareholders
5. 93Affiliates of the Sponsor may invest in or trade bitcoin without regard to the interests of the Trust or its Shareholders
6. 94Shareholders cannot be assured that the Sponsor will be willing or able to continue to serve as sponsor to the Trust for any length of time. If the Sponsor discontinues its activities on behalf of the Trust and a substitute sponsor is not appointed, the Trust will terminate and liquidate the bitcoins held by the Trust
7. 95The Custodians owe no fiduciary duties to the Trust or the Shareholders, is not required to act in their best interest and could resign or be removed by the Sponsor, which could trigger early termination of the Trust
8. 96The Custodians’ abilities to adopt technology in response to changing security needs or trends pose a challenge to the safekeeping of the Trust’s bitcoins
9. 97The Sponsor and its affiliates, or another entity (i.e., a seed investor), may invest in the Trust
10. 98Shareholders may be adversely affected by the lack of independent advisers representing investors in the Trust
11. 99Shareholders may be adversely affected by the lack of regular shareholder meetings and no voting rights