WisdomTree Bitcoin Fund (BTCW) risk factors, FY2024 10-K

Other

1. 01Risk Factors Associated with bitcoin and the Bitcoin Network
2. 02Digital assets such as bitcoin are relatively new, and the value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies and to the fundamental investment characteristics of digital assets that are uncertain and difficult to evaluate
3. 03The value of the Shares relates directly to the value of the bitcoin held by the Trust. The price of bitcoin has fluctuated widely and may continue to experience significant price fluctuations, which could adversely affect the value of the Shares
4. 04Due to the nature of private keys, bitcoin transactions are irrevocable and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely affect an investment in the Trust
5. 05Security threats to the Trust’s account with the Bitcoin Custodian or Prime Execution Agent 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
6. 06The value of the Shares depends on the development and acceptance of the Bitcoin network. The slowing or stopping of the development or acceptance of the Bitcoin network may adversely affect an investment in the Trust
7. 07A disruption of the Internet may affect the operation of the Bitcoin network, which may adversely affect the bitcoin industry and an investment in the Trust
8. 08Potential amendments 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
9. 09A temporary or permanent “fork” of the Bitcoin Blockchain could adversely affect an investment in the Trust
10. 10A future fork in the Bitcoin network could adversely affect the value of the Shares or the ability of the Trust to operate
11. 11In the event of a hard fork of the Bitcoin network, the Sponsor will 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
12. 12The Bitcoin Blockchain could be vulnerable to a “51% attack,” which could adversely affect an investment in the Trust or the ability of the Trust to operate
13. 13Transacting in bitcoin is subject to illicit financing risk
14. 14If miners expend less processing power on the Bitcoin network, it could increase the likelihood of a malicious actor obtaining control
15. 15Blockchain technologies are based on the theoretical conjectures as to the impossibility of solving certain cryptographical puzzles quickly. These premises may be incorrect or may become incorrect due to technological advances
16. 16The price of bitcoin on the bitcoin market has exhibited periods of extreme volatility, which could have a negative impact on the performance of the Trust
17. 17The price of bitcoin may become closely correlated with other asset classes
18. 18Prices of bitcoin may be affected due to stablecoins, the activities of stablecoin issuers and their regulatory treatment
19. 19Currently, there is relatively small use of bitcoin in the retail and commercial marketplace in comparison to relatively large use by speculators and those perceiving bitcoin as a store of value, thus contributing to price volatility that could adversely affect an investment in the Trust
20. 20Risk of Fraud and Market Manipulation
21. 21Spot markets may be exposed to wash trading
22. 22Sales of new bitcoin may cause the price of bitcoin to decline, which could negatively affect an investment in the Trust
23. 23Digital asset networks face significant scaling challenges and efforts to increase the volume of transactions may not be successful
24. 24The Bitcoin network’s decentralized governance structure may negatively affect its ability to grow and respond to challenges
25. 25New competing digital assets may pose a challenge to bitcoin’s current market position, resulting in a reduction in demand for bitcoin, which could have a negative impact on the price of bitcoin and may have a negative impact on the performance of the Trust
26. 26The Trust and the Sponsor face competition from competing products
27. 27Competition from central bank digital currencies (“CBDCs”) and other initiatives could adversely affect the value of bitcoin and other digital assets
28. 28Miners could act in collusion to raise transaction fees, which may adversely affect the usage of the Bitcoin network
29. 29As 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
30. 30If 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
31. 31Congestion or delay in the Bitcoin network may delay purchases or sales of bitcoin by the Trust
32. 32Bitcoin mining is energy intensive and concerns about climate change may raise the economic and societal costs of bitcoin mining
33. 33The value of the Shares relates directly to the value of the bitcoin held by the Trust and fluctuations in the price of bitcoin could materially and adversely affect an investment in the Shares
34. 34Due to the unregulated nature and lack of transparency surrounding the operations of bitcoin platforms, the marketplace may lose confidence in bitcoin platforms, upon which the Trust is dependent
35. 35Since there is no limit on the number of bitcoin that the Trust may acquire, the Trust itself, as it grows, may have an impact on the supply and demand of bitcoin that ultimately may affect the price of the Shares in a manner unrelated to other factors affecting the global market for bitcoin
36. 36The 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 the Exchange and the bitcoin platform market
37. 37Investors in Shares in the secondary market may be subject to brokerage commissions, over which the Trust has no control
38. 38If bitcoin prices on the bitcoin platform market move negatively during hours when the Exchange is closed, trading prices on the Exchange may “gap” down at market open
39. 39A 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
40. 40Purchasing activity in the bitcoin platform market associated with Basket creations or selling activity following Basket redemptions may affect the Reference Rate and Share trading prices, adversely affecting an investment in the Shares
41. 41An investment in the Shares may be adversely affected by competition from other methods of investing in bitcoin
42. 42The Reference Rate may be affected by the sale of other digital currency financial vehicles that invest in and track the price of bitcoin
43. 43The impact of geopolitical or economic events on the supply and demand for bitcoin is uncertain, but could motivate large-scale sales of bitcoin, which could result in a reduction in the Reference Rate and adversely affect an investment in the Shares
44. 44The Reference Rate has a limited history and there are limitations with the price of bitcoin reflected there
45. 45The value of bitcoin as reflected by the Reference Rate 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
46. 46The Benchmark Administrator could experience system failures or errors
47. 47The Reference Rate could fail to track the global bitcoin price
48. 48The Sponsor can discontinue using the Reference Rate and use a different pricing or valuation methodology instead
49. 49As the Sponsor and its management have no meaningful history of operating an investment vehicle like the Trust within the United States, their experience may be inadequate or unsuitable to manage the Trust
50. 50The Trust is a passive investment vehicle that does not seek to generate returns beyond tracking the price of bitcoin. The Trust is not actively managed and will be affected by a general decline in the price of bitcoin
51. 51The value of the Shares may be influenced by a variety of factors unrelated to the value of bitcoin
52. 52The Shares are a relatively new securities product
53. 53The Trust is subject to market risk
54. 54The NAV may not always correspond to the market price of bitcoin and, as a result, Baskets may be created or redeemed at a value that is different from the market price of the Shares
55. 55Authorized Participants’ buying and selling activity associated with the creation and redemption of Baskets may adversely affect an investment in the Shares of the Trust
56. 56Selling activity associated with sales of bitcoin by Authorized Participants 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
57. 57The 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
58. 58The Trust is subject to risks due to its concentration of investments in a single asset class
59. 59The lack of full insurance and Shareholders’ limited rights of legal recourse against the Trust, Trustee, Sponsor, Trust Administrator, Cash Custodian, Bitcoin Custodian and Prime Execution Agent expose the Trust and its Shareholders to the risk of loss of the Trust’s bitcoins for which no person or entity is liable
60. 60If 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
61. 61Loss of a critical banking relationship for, or the failure of a bank used by, the Trust could adversely impact the Trust’s ability to create or redeem Creation Baskets, or could cause losses to the Trust
62. 62The Prime Execution Agent routes orders through Connected Trading Venues in connection with trading services under the Prime Execution Agent Agreement. The loss or failure of any such Connected Trading Venues may adversely affect the Prime Execution Agent’s business and cause losses for the Trust
63. 63The lack of active trading markets for the Shares of the Trust may result in losses on Shareholders’ investments at the time of disposition of Shares
64. 64Possible illiquid markets may exacerbate losses or increase the variability between the Trust’s NAV and its market price
65. 65Several factors may affect the Trust’s ability to achieve its investment objective on a consistent basis
66. 66The amount of bitcoin represented by the Shares will decline over time
67. 67The development and commercialization of the Trust is subject to competitive pressures
68. 68The Trust is an emerging growth company, and the Trust cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the Shares less attractive to investors
69. 69In addition, under the JOBS Act, the Trust’s independent registered public accounting firm will not be required to attest to the effectiveness of its internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for so long as it is an emerging growth company
70. 70If the Trust issues all Shares registered or such registration expires, it could have to cease creating new Baskets until additional shares are registered for sale
71. 71Risk Factors Associated with Regulation
72. 72Future and current regulations by a United States or foreign government or quasi-governmental agency could have an adverse effect on an investment in the Trust
73. 73The Trust is not an investment company registered under the 1940 Act or the Commodity Exchange Act
74. 74Future regulations may require the Trust or the Sponsor to become registered, which may cause the Trust to liquidate
75. 75The Sponsor may need to find and appoint a replacement custodian or execution agent quickly, which could pose a challenge to the safekeeping of the Trust’s bitcoin and the Trust’s ability to continue to operate may be adversely affected
76. 76The Trust Administrator calculates the NAV using the value of the bitcoin holdings and bitcoin holdings per Share, and any errors, discontinuance or changes in such valuation calculations may have an adverse effect on the value of the Shares
77. 77The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor, the Trustee, the Trust Administrator Transfer Agent, the Bitcoin Custodian or the Cash Custodian under the Trust documents
78. 78Intellectual property rights claims may adversely affect the Trust and the value of the Shares
79. 79Shareholders could incur a tax liability without an associated distribution of the Trust
80. 80The tax treatment of bitcoin and transactions involving bitcoin for United States federal income tax purposes may change
81. 81The tax treatment of bitcoin and transactions involving bitcoin for state and local tax purposes is not settled
82. 82The 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
83. 83The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants or other market participants, which could adversely affect the market price of the Shares
84. 84The 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
85. 85Bitcoin platforms are not subject to same regulatory oversight as traditional equity exchanges, which could negatively impact the ability of Authorized Participants to implement arbitrage mechanisms
86. 86Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions and operational risks associated with trading in secondary markets may adversely affect Shareholders’ investment in the Shares
87. 87As the Sponsor and its management have limited history of operating investment vehicles like the Trust, their experience may be inadequate or unsuitable to manage the Trust
88. 88The Sponsor is leanly staffed and relies heavily on key personnel
89. 89The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders
90. 90Shareholders 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
91. 91An investment in the Trust may be adversely affected by competition from other ETFs focused on bitcoin
92. 92An investment in the Trust may be adversely affected by competition from other investment vehicles focused on bitcoin or other cryptocurrencies
93. 93Coinbase serves as the bitcoin custodian and prime execution agent for several competing exchange-traded bitcoin products, which could adversely affect the Trust’s operations and ultimately the value of the Shares
94. 94Authorized Participants serve in a similar capacity on behalf of several, competing exchange-traded bitcoin products, which could adversely affect the value or availability of the Shares
95. 95Shareholders cannot be assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Trust
96. 96Shareholders may be adversely affected by creation or redemption orders that are subject to postponement, suspension or rejection under certain circumstances
97. 97Shareholders may be adversely affected by an overstatement or understatement of the NAV calculation of the Trust due to the valuation method employed on the date of the NAV calculation
98. 98The liability of the Sponsor and the Trustee is limited, and the value of the Shares will be adversely affected if the Trust is required to indemnify the Trustee or the Sponsor
99. 99Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting an investment in the Shares
100. 100Third parties may infringe upon or otherwise violate intellectual property rights or assert that the Sponsor has infringed or otherwise violated their intellectual property rights, which may result in significant costs and diverted attention
101. 101Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks
102. 102The Trust and its service providers are subject to certain operational risks
103. 103The Trust Agreement includes a provision that restricts the right of a beneficial owner of a statutory trust from bringing a derivative action
104. 104Pandemics and other public health crises could have a material adverse effect on the Trust’s business and financial condition