Registration No. 333-276125
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TIDAL COMMODITIES
TRUST I
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
6221 |
92-6468665 |
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification No.) |
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c/o Tidal Investments LLC
234 West Florida Street,
Suite 203
Milwaukee, WI 53204
Phone: (844) 986-7700
(Address, including zip code, and telephone
number, including area code, of Registrant’s principal executive offices) |
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Guillermo Trias
Chief Executive Officer
Tidal Investments LLC
234 West Florida Street,
Suite 203
Milwaukee, WI 53204
Phone: (844) 986-7700
(Name, address, including zip code, and telephone number, including area code, of agent for service) |
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Michael Pellegrino
Tidal Investments LLC
234 West Florida Street,
Suite 203
Milwaukee, WI 53204
(844) 986-7700
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Copies to:
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Morrison C. Warren, Esq.
Chapman and Cutler LLP
320 South Canal Street
Chicago, Illinois 60060
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Approximate date of commencement
of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. ☒
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-accelerated filer |
☐
☒
|
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 pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends
this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The information in this preliminary
prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated October 7, 2024
[Insert Logo]
7RCC Spot Bitcoin and Carbon Credit Futures
ETF
Common Shares of Beneficial Interest
The Fund. The 7RCC
Spot Bitcoin and Carbon Credit Futures ETF (the “Fund”), a newly established series of Tidal Commodities Trust I (the “Trust”),
is an exchange-traded fund which issues common shares of beneficial interest (the “Shares”), which represent units of fractional
undivided beneficial interest in and ownership of the Fund. Shareholders have no voting rights with respect to the Trust or the Fund except
as expressly provided in the Trust’s First Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”).
Tidal Investments LLC (the “Sponsor”), a Delaware limited liability company, is the sponsor of the Trust and receives a management
fee. The principal office address and telephone number of both the Fund and the Sponsor is [234 West Florida, Suite 203, Milwaukee, Wisconsin
53204 and (844) 986-7700]. Tidal ETF Services, LLC (“Tidal” or the “Administrator”) provides administrative services
to the Fund and has also engaged the Fund’s Sub-Administrator ([ ]). [ ]
(“[ ]” and the “Marketing Agent”) assists the Fund and the Sponsor with certain functions and
duties relating to marketing, which include the following: marketing, sales strategy, and related services. Wilmington Trust, National
Association serves as the Delaware trustee of the Trust (the “Trustee”). [ ] will serve as the transfer agent of the Fund
(in such capacity, the “Transfer Agent”). The Fund intends to appoint [Gemini Trust Company, LLC] (“Gemini” or
the “Bitcoin Custodian”) as the custodian of the Fund’s bitcoins, and [________] (the “Non-Digital Custodian”,
and collectively with the Bitcoin Custodian, the “Custodians”) will be the custodian of the Fund’s cash and cash equivalents
and investments in carbon credit futures contracts (“Carbon Credit Futures”) on the Fund’s behalf. The Fund intends
to apply to list its Shares on the New York Stock Exchange (the “NYSE” or “Exchange”). The trading or ticker symbol
of the Shares is expected to be “BTCK”.
Investment Objective.
The Fund’s investment objective is to reflect the daily changes of the price of bitcoin and the value of Carbon Credit Futures,
as represented by the 7RCC Vinter Bitcoin Carbon Credit Index (the “Index”), less expenses from the Fund’s operations.
There can be no assurance that the Fund will achieve its investment objective or that of the Fund’s investment strategy.
Investment Strategy.
The Fund’s investment strategy is to hold a combination of bitcoin and obtain exposure to Carbon Credit Futures, in an approximate
ratio of 80:20, respectively. Bitcoin is a digital commodity based on the cryptographic protocols used by the decentralized, peer-to-peer
bitcoin computer network. Carbon Credit Futures are futures contracts on emissions allowances issued by various “cap-and-trade”
regulatory request that seek to reduce greenhouse gases over time. The Index is designed to track
the performance of investing in a portfolio comprised of 80% bitcoin and 20% Carbon Credit Futures, which are linked to the value of emissions
allowances issued under the following cap-and-trade regimes: the European Union Emissions Trading System, the California Carbon Allowance,
and Regional Greenhouse Gas Initiative. Because the Fund’s investment objective is to track the daily changes of the price of bitcoin
and Carbon Credit Futures, changes in the price of the Shares will vary from changes in the spot price of bitcoin, carbon credits or Carbon
Credit Futures. Investing in the Fund involves risks relatively similar to those involved with an investment directly in bitcoin
and/or Carbon Credit Futures and other significant risks. See “Risk Factors” beginning on page [•].
No Prior History. Because
the Fund is newly organized, its Shares have no history of public trading. Shares of the Fund may trade at a discount from their net asset
value (“NAV”).
The Offering. This
is an initial public offering of the Fund’s Shares. The Shares will be continuously offered under the Securities Act of 1933, as
amended. The Shares may be purchased from the Fund only in one or more blocks of [10,000] Shares (a block of [10,000] Shares is called
a “Basket”). The Fund issues (“Creation Baskets”) and redeems (“Redemption Baskets”) Baskets generally
for cash (unless as provided otherwise in this Prospectus), and only to and from broker-dealers and large institutional investors that
have entered into participation agreements (“Authorized Purchasers”) on an ongoing basis. Creation Baskets are offered continuously
at the Fund’s NAV per Share. See “Calculation of NAV.” The Fund does not issue Shares in fractions of a Basket. The
Fund intends to redeem Shares in Redemption Baskets on an ongoing basis from Authorized Purchasers. See “Description of Creation
and Redemption of Shares” Authorized Purchasers bear the risk of any price volatility in the price of Shares and the underlying
assets of the Fund between the time they submit their order and when they are delivered Shares. Authorized Purchasers may then offer Shares
to the public at prices that depend on various factors, including the supply and demand for shares, the value of the Fund’s assets,
and market conditions at the time of a transaction. The initial Authorized Purchaser is expected to be [ ]. The offering of an indeterminate
amount of Shares is registered with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Act
of 1933, as amended (the “Securities Act”). The offering is intended to be a continuous offering.
An investment in the Fund
is subject to the risks of an investment in bitcoin and exposure to futures contracts through one or more financial intermediaries, both
of which are often subject to a high degree of price variability. An investment in the Fund may be riskier than other exchange-traded
products that do not hold either bitcoin or exposure to futures contracts and may not be suitable for all investors. In addition, bitcoin
and Carbon Credit Futures may experience pronounced and swift price changes. Accordingly, there is a potential for movement in the price
of Shares between the time an investor places an order to purchase or sell with its broker-dealer and the time of the actual purchase
or sale resulting from the price volatility of the Fund’s assets.
Shareholders who decide
to buy or sell Shares of the Fund will place their trade orders through their brokers and may incur customary brokerage commissions and
charges. Prior to this offering, there has been no public market for the Shares. The Shares are expected to be listed for trading, subject
to notice of issuance, on the NYSE.
THE FUND INVOLVES A HIGH
DEGREE OF RISK AND PRESENTS MANY DIFFERENT RISKS THAN OTHER TYPES OF FUNDS, INCLUDING RISKS RELATED TO THE TAX TREATMENT OF SUCH INVESTMENT,
BITCOIN OR INTERESTS RELATED TO BITCOIN OR CARBON CREDIT FUTURES. THE FUND IS RISKIER THAN OTHER EXCHANGE-TRADED PRODUCTS THAT DO NOT
HOLD FINANCIAL INSTRUMENTS RELATED TO BITCOIN OR CARBON CREDIT FUTURES. THE FUND MAY NOT BE SUITABLE FOR SHAREHOLDERS THAT ARE NOT IN
A POSITION TO ACCEPT MORE RISK THAN MAY BE INVOLVED WITH OTHER EXCHANGE-TRADED PRODUCTS. AS WITH ALL INVESTMENTS, AN INVESTOR IN THE FUND
COULD POTENTIALLY LOSE THE FULL PRINCIPAL VALUE OF THEIR INVESTMENT. INVESTING IN SHARES INVOLVES SPEICAL RISKS THAT ARE DESCRIBED IN
THE “RISK FACTORS” SECTION BEGINNING ON PAGE [•] OF THIS PROSPECTUS.
Neither the Trust nor the
Fund is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and therefore neither
is subject to regulation thereunder. Shareholders do not have the protections associated with ownership of shares in an investment company
registered under the Investment Company Act. See risk factor entitled “Shareholders do not have the protections associated with
ownership of shares in an investment company registered under the Investment Company Act” in this Prospectus for more information.
NEITHER THE SEC NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OFFERED IN THIS PROSPECTUS, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING
COMMISSION (“CFTC”) HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS COMMODITY POOL NOR HAS THE CFTC PASSED ON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
The Trust is an “emerging
growth company” as that term is used in the Jumpstart Our Business Startups Act (the “Jobs Act”) and, as such, may elect
to comply with certain reduced reporting requirements.
The Shares are neither
interests in nor obligations of the Sponsor, or the Trustee (each as defined herein). The Shares are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
This Prospectus has two
parts: a disclosure document and a statement of additional information. These parts are bound together and both contain important information.
The date of this prospectus is [ _______,
____].
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER
WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST
TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE COMMODITY
POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE COMMODITY POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY
TO WITHDRAW YOUR PARTICIPATION IN THE COMMODITY POOL.
FURTHER, COMMODITY POOLS
MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE COMMODITY POOLS THAT
ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS
A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED BY THIS COMMODITY POOL AT PAGE [•] AND A STATEMENT OF THE PERCENTAGE RETURN
NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE [•].
THIS BRIEF STATEMENT CANNOT
DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE
TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS PROSPECTUS, INCLUDING A DESCRIPTION OF THE MATERIAL RISK FACTORS
OF THIS INVESTMENT, AT PAGE [•].
YOU SHOULD ALSO BE AWARE
THAT THIS COMMODITY POOL MAY ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT CONDUCTED IN THE INTERBANK MARKET. THE
FUNDS THAT THE POOL USES FOR OFF-EXCHANGE FOREIGN CURRENCY TRADING WILL NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO MARGIN OR GUARANTEE
EXCHANGETRADED FUTURES AND OPTION CONTRACTS. IF THE POOL DEPOSITS SUCH FUNDS WITH A COUNTERPARTY AND THAT COUNTERPARTY BECOMES INSOLVENT,
THE POOL’S CLAIM FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE COUNTERPARTY MAY NOT BE TREATED AS A COMMODITY
CUSTOMER CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF THE BANKRUPTCY CODE AND THE REGULATIONS THEREUNDER. THE POOL MAY BE A GENERAL
CREDITOR AND ITS CLAIM MAY BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS
ARE PAID. EVEN POOL FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF PRIORITY AND OTHER
GENERAL CREDITORS.
TIDAL INVESTMENTS LLC (“TIDAL”)
IS A MEMBER OF NFA AND IS SUBJECT TO NFA’S REGULATORY OVERSIGHT AND EXAMINATIONS. TIDAL HAS ENGAGED OR MAY ENGAGE IN UNDERLYING
OR SPOT VIRTUAL CURRENCY TRANSACTIONS IN A COMMODITY POOL. ALTHOUGH NFA HAS JURISDICTION OVER TIDAL AND ITS COMMODITY POOL, YOU SHOULD
BE AWARE THAT NFA DOES NOT HAVE REGULATORY OVERSIGHT AUTHORITY FOR UNDERLYING OR SPOT MARKET VIRTUAL CURRENCY PRODUCTS OR TRANSACTIONS
OR VIRTUAL CURRENCY EXCHANGES, CUSTODIANS OR MARKETS. YOU SHOULD ALSO BE AWARE THAT GIVEN CERTAIN MATERIAL CHARACTERISTICS OF THESE PRODUCTS,
INCLUDING LACK OF A CENTRALIZED PRICING SOURCE AND THE OPAQUE NATURE OF THE VIRTUAL CURRENCY MARKET, THERE CURRENTLY IS NO SOUND OR ACCEPTABLE
PRACTICE FOR NFA TO ADEQUATELY VERIFY THE OWNERSHIP AND CONTROL OF A VIRTUAL CURRENCY OR THE VALUATION ATTRIBUTED TO A VIRTUAL CURRENCY
BY TIDAL.
THIS PROSPECTUS DOES NOT
INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE REGISTRATION STATEMENT OF THE FUND. INVESTORS CAN READ AND COPY THE ENTIRE REGISTRATION
STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C.
THE FUND WILL FILE QUARTERLY
AND ANNUAL REPORTS WITH THE SEC. INVESTORS CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN WASHINGTON, D.C.
PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION.
THE FILINGS OF THE TRUST
ARE POSTED AT THE SEC WEBSITE AT WWW.SEC.GOV.
REGULATORY NOTICES
NO DEALER, SALESMAN OR
ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, THE FUND, THE SPONSOR,
THE AUTHORIZED PARTICIPANTS OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY OFFER, SOLICITATION, OR SALE
OF THE SHARES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION, OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER, SOLICITATION, OR SALE.
AUTHORIZED PARTICIPANTS
MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN TRANSACTING IN SHARES. SEE “PLAN OF DISTRIBUTION” IN PART ONE OF THIS PROSPECTUS.
TABLE OF CONTENTS
Page
GLOSSARY
OF DEFINED TERMS
In this prospectus, each of
the following quoted terms has the meanings set forth after such term:
“Additional Trust Expenses”—Together,
any expenses of the Trust that are not assumed by the Sponsor, 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, indemnification expenses of the Custodians,
Administrator or other agents, service providers or counterparties of the Trust and extraordinary legal fees and expenses.
“Administrator”—
Tidal ETF Services LLC.
“Administrator Fee”—The
fee payable to the Administrator for services it provides to the Trust, which the Sponsor shall pay the Administrator as a Sponsor-paid
Expense.
“Auditor”—
[ ]
“Authorized Purchaser”—A
financial entity (specifically a member or participant of a clearing agency registered with the SEC) that has a contractual agreement
with the Fund (or its service provider) to purchase and redeem Shares directly with the Fund in Baskets.
“Authorized Purchaser
Agreement”—An agreement entered into by an Authorized Purchaser with the Sponsor and the Administrator [and the Marketing
Agent] which provides the procedures for the creation and redemption of Baskets
“Basket”—An
aggregation of [10,000] Shares for which the Fund offers, issues and redeems Shares.
“Basket Price”—
The NAV attributable to each Share of the Fund (net of accrued but unpaid expenses and liabilities) multiplied by the number of Shares
comprising the Basket.
“Bitcoin”—A
digital asset that is native to the Bitcoin Network.
“Bitcoin Account”—The
Vault Balance and any subaccounts associated therewith.
“Bitcoin Assets”—The
bitcoin of the Sponsor and the Trust kept by the Bitcoin Custodian.
“Bitcoin Blockchain”
or “Blockchain”—The public transaction ledger of the Bitcoin Network on which miners or mining pools solve algorithmic
equations allowing them to add records of recent transactions (called “blocks”) to the chain of transactions in exchange for
an award of bitcoin from the Bitcoin Network and the payment of transaction fees, if any, from users whose transactions are recorded in
the block being added.
“Bitcoin Custodian”—
[Gemini Trust Company, LLC].
“Bitcoin Network”—The
decentralized, open source protocol of a peer-to-peer network that facilitates the creation, transmission and ownership of bitcoin.
“Bitcoin Platform”—An
electronic marketplace where exchange participants may trade, buy and sell bitcoin based on bid-ask trading. The largest Bitcoin Platforms
are online and typically trade on a 24-hour basis, publishing transaction price and volume data.
“Bitcoin Platform Market”—The
global bitcoin platform market for the trading of bitcoin, which consists of transactions on electronic Bitcoin Exchanges.
“Bitcoin Price”—The
U.S. Dollar value of a bitcoin as represented by the Index.
“Bitcoin Trading Counterparty”—An
approved bitcoin trading counterparty.
“Book Entry System”—The
Federal Reserve Treasury Book Entry System for U.S. and federal agency securities.
“Business Day”—Each
day the Shares trade on [ ].
“Cap”—Maximum
level of GHG emissions for a certain group of entities as defined by a regulator.
“Carbon Credit Futures”—Carbon
credits futures contracts
“CCMs”—Compliance
carbon markets.
“CEA”—Commodity
Exchange Act of 1936, as amended.
“CFTC”—The
U.S. Commodity Futures Trading Commission
“Code”—The
U.S. Internal Revenue Code of 1986, as amended.
“CO2”—Carbon-dioxide.
“CO2e”—Carbon-dioxide
equivalent.
“Commodity Pool”—Any
investment trust, syndicate or similar form of enterprise operated for the purpose of trading in commodity interests
“Commodity Pool Operator”
or “CPO”—Any person engaged in a business which is of the nature of an investment trust, syndicate, or similar enterprise,
and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through
capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in any commodity for future
delivery or commodity option on or subject to the rules of any contract market.
“Commodity Trading Advisor
“or “CTA”—A person or organization who: (a) for compensation or profit, engages in the business of advising others,
either directly or through publications, writings, or electronic media, as to the value or advisability of trading any contract for the
sale of a commodity for future delivery; (b) for compensation or profit, and as part of a regular business, issues or promulgates analyses
or reports concerning a contract of sale of a commodity for future delivery, or (c) is registered with the CFTC as a CTA.
“Creation Basket”—Basket
of Shares issued by the Fund in exchange for the cash deposit equal to the Fund’s NAV on a per Share basis required for each such
Creation Basket.
“Custodians”—
Collectively, the Bitcoin Custodian and Non-Digital Custodian
“Designated Contract
Market” or “DCM”—A designated contract market or U.S. regulated futures exchange.
“Dodd-Frank Act”–The Wall Street Reform and Consumer Protection Act of 2010.
“DSTA”—The
Delaware Statutory Trust Act, as amended.
“DTC”—The
Depository Trust Company.
“DTC Participant”—An
entity that has an account with DTC.
“ERISA”—The
Employee Retirement Income Security Act of 1974, as amended.
“Evaluation Time”—Each
business day at 4:00 p.m., Eastern Time, or as soon thereafter as practicable.
“Exchange” or
“NYSE”— New York Stock Exchange; the venue where Shares are listed and traded.
“Exchange Act”—The
Securities Exchange Act of 1934, as amended.
“FDIC”—The
Federal Deposit Insurance Corporation.
“FinCEN”—The
Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury.
“FINRA”—The
Financial Industry Regulatory Authority, Inc.
“Fund”—7RCC
Spot Bitcoin and Carbon Credit Futures ETF
“Futures Commission
Merchant” or “FCM”—A person or organization who: (a) is engaged in soliciting or in accepting orders for the purchase
or sale of any commodity for future delivery, a security futures product, a commodity, swap, any agreement, contract or transaction, a
commodity option, an authorized leverage transaction, or acting as a counter party in any agreement, contract or transaction, (b) in connection
with any of these activities accepts money, securities or property to margin, guarantee, or secure any trades or contracts that may result
therefrom, and (c) is registered with the CFTC as a FCM.
“GAAP”—The
U.S. generally accepted accounting principles.
“GHG”—Greenhouse
gas.
“Index”—7RCC
Vinter Bitcoin Carbon Credit Index
“Indirect Participants”—Those
banks, brokers, dealers, trust companies and others who clear through or maintain, either directly or indirectly, a custodial relationship
with a DTC Participant.
“Investment Advisers
Act”—Investment Advisers Act of 1940, as amended.
“Investment Company
Act”—Investment Company Act of 1940, as amended.
“IRA”—An
individual retirement account provided for under Section 408(m) of the Code.
“IRS”—The
U.S. Internal Revenue Service, a bureau of the U.S. Department of the Treasury.
“Management Fee”—A
fee in an amount equal to [ ]% per annum of the daily NAV of the Fund, paid monthly in arrears, in consideration of the Sponsor’s
services related to the management of the Fund’s business and affairs.
“Marketing
Agent”— [ ], which is engaged by the Sponsor and is responsible for the
marketing of the Shares.
“Marketing Fee”—Fee
payable to the Marketing Agent for services it provides to the Fund, which the Sponsor shall pay to the Marketing Agent as a Sponsor-paid
Expense.
“NAV”—The
net asset value of the Fund
“NFA”—The
National Futures Association.
“Non-Digital Custodian”—
[ ]
“OTC”—Over-the-counter.
“Redemption Basket”—Baskets
of Shares redeemed in exchange for cash in an amount equal to the Fund’s NAV on a per Share basis for each such Redemption Basket.
“SEC”—The
U.S. Securities and Exchange Commission.
“Securities Act”—The
Securities Act of 1933, as amended.
“Service Providers”—Collectively,
the Sponsor, the Trustee, [the Bitcoin Advisor,] the Transfer Agent, the Administrator, the Custodians, the Marketing Agent and the FCMs.
“Shareholder”—Any
owner of Shares.
“Shares”—Common
units of fractional undivided beneficial interest in, and ownership of, the Fund.
“SIPC”—The
Securities Investor Protection Corporation.
“Solactive” —
Solactive AG
“Sponsor”—Tidal
Investments LLC, a Delaware limited liability company, which is registered as a Commodity Pool Operator.
“Sponsor-paid Expense(s)”—The Fund’s fees and expenses that the are deducted from the Management Fee: the Marketing Fee, the Administrator Fee, the fees of
the Custodians, the Transfer Agent Fee, the Trustee fee, applicable license fees, including the licensing fees related to the Index License
Agreement, fees and expenses related to trading of Shares on the Exchange (including marketing, legal and audit fees and expenses), legal
expenses, audit fees, regulatory fees, including any fees relating to the registration of the Shares with the SEC, printing and mailing
costs and costs of maintaining the Trust’s website.
“SROs”—Self-regulatory
organizations.
“Sub-Administrator”—[ ]
“Swap Agreement”—An
OTC derivative that generally involved an exchange of a stream of payments between the contracting parties based on a notional amount
and a specified index.
“Transfer Agent”—[ ]
“Transfer Agent Fee”—Fee
payable to the Transfer Agent for services it provides to the Trust, which the Sponsor shall pay to the Transfer Agent as a Sponsor-paid
Expense.
“Treasury
Securities”—Fixed-income assets issued by the United States Treasury Department.
“Trust”—Tidal
Commodities Trust I, a Delaware statutory trust under the DSTA and the pursuant to the Trust Agreement.
“Trust Agreement”—The
First Amended and Restated Declaration of Trust and Trust Agreement between the Trustee and the Sponsor establishing and governing the
operations of the Trust dated as of March 10, 2023, as the same may be amended from time to time.
“Trustee”—Wilmington
Trust, National Association, the Delaware trustee of the Trust.
“U.S. Dollar”
or “$”—United States Dollar or Dollars.
“Vault Balance”—One
or more storage accounts in the name of the Sponsor and of the Fund held for the safekeeping of the Fund’s bitcoin.
“VCMs”—Voluntary
carbon markets.
“Vinter”—
Invierno AB, Reg. No. 559207-4172, Box 5193, 10244 Stockholm, Sweden.
PART
ONE – Disclosure document
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking
statements” with respect to the Fund’s financial conditions, results of operations, plans, objectives, future performance
and business. Statements preceded by, followed by or that include words such as “may,” “might,” “will,”
“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“predict,” “potential” or “continue,” the negative of these terms and other similar expressions are
intended to identify some of the forward-looking statements. All statements (other than statements of historical fact) included in this
prospectus that address activities, events or developments that will or may occur in the future, including such matters as changes in
the market prices and conditions for bitcoin and commodities futures markets (particularly, the carbon credit futures), the Fund’s
operations, the Sponsor’s plans and references to the Fund’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 made based on its perception of historical trends, current conditions and expected future developments,
as well as other factors appropriate in the circumstances. You should specifically consider the numerous risks outlined under “Risk
Factors.” Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however,
is subject to a number of risks and uncertainties, including:
| ● | the special considerations discussed in this prospectus; |
| ● | general economic, market and business conditions; |
| ● | the use of technology by us and our vendors, including the Custodians, in conducting our business, including
disruptions in our computer systems and data centers and our transition to, and quality of, new technology platforms; |
| ● | changes in laws or regulations, including those concerning taxes, made by governmental authorities or
regulatory bodies; |
| ● | the costs and effect of any litigation or regulatory investigations; |
| ● | our ability to maintain a positive reputation; and |
| ● | other world economic and political developments. |
Consequently, all the forward-looking
statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that the actual results
or developments the Sponsor anticipates will be realized or, even if substantially realized, that they will result in the expected consequences
to, or have the expected effects on, the Fund’s operations or the value of the 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 beliefs,
estimates and opinions on the date the statements are made and neither the Fund nor the Sponsor 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 Fund, the Sponsor, 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.
INDUSTRY
AND MARKET DATA
Although we are responsible
for all disclosure contained in this prospectus, in some cases we have relied on certain market and industry data obtained from third-party
sources that we believe to be reliable. Market estimates are calculated by using independent industry publications in conjunction with
our assumptions regarding the bitcoin industry and commodities futures market (particularly, carbon credit futures). While we are not
aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties
and is subject to change based on various factors, including those discussed under the headings “Statement Regarding Forward-Looking
Statements” and “Risk Factors” in this prospectus.
PROSPECTUS
SUMMARY
This is only a summary
of the prospectus and, while it contains material information about the Fund and its Shares, it does not contain or summarize all of the
information about the Fund and the Shares contained in this prospectus which is material and/or which may be important to you. You should
read this entire prospectus, including the “Risk Factors” discussion beginning on page [•], before making an investment
decision about the Shares.
The Fund
The 7RCC Spot Bitcoin and
Carbon Credit Futures ETF (the “Fund”), a newly established series of Tidal Commodities Trust I (the “Trust”),
is an exchange-traded fund. The Fund issues common shares of beneficial interest (the “Shares”), which represent units of
fractional undivided beneficial interest in and ownership of the Fund. Tidal Investments LLC (the “Sponsor”), a Delaware limited
liability company, is the Fund’s sponsor.
The Fund is a commodity pool
for purposes of the Commodity Exchange Act of 1936, as amended (the “CEA”), and the Fund and the Sponsor are subject to regulation
by the Commodity Futures Trading Commission (the “CFTC”) and are registered with the National Futures Association (“NFA”).
The Sponsor is registered with the NFA as a commodity pool operator (“CPO”) and commodity trading advisor (“CTA”).
The Fund is not an investment company as defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”),
and is not subject to regulation thereunder. Shareholders do not have the protections associated with ownership of shares in an investment
company registered under the Investment Company Act.
Offering of the Shares
The Shares will be continuously
offered under the Securities Act of 1933, as amended (the “Securities Act”). The Fund issues and redeems Shares at net asset
value (“NAV”) only in large, specified blocks each consisting of [10,000] Shares (each such block of shares called a “Basket,”
and collectively, the “Baskets”). The Fund’s Baskets are generally issued (“Creation Baskets”) and redeemed
(“Redemption Baskets”) for cash, and only to and from broker-dealers and large institutional investors that have entered into
participation agreements (“Authorized Purchasers”).
Investment Objective
The Fund’s investment
objective is to reflect the daily changes of the price in bitcoin and the value of carbon credit futures contracts (“Carbon Credit
Futures”), as represented by the 7RCC Vinter Bitcoin Carbon Credit Index (the “Index”), less expenses from the Fund’s
operations. There can be no assurance that the Fund will achieve its investment objective or its investment strategy.
Investment Strategy
The Fund’s
investment strategy is to hold a combination of bitcoin and Carbon Credit Futures to replicate the performance of the Index. The
Fund seeks these investments to reflect the daily changes in the price of bitcoin and Carbon Credit Futures, as represented in the
Index. The Index is designed to track the performance of investing in a portfolio comprised of 80% bitcoin and 20% Carbon Credit
Futures. The Index’s Carbon Credit Futures are linked to the value of emissions allowances issued under the following
cap-and-trade regimes: the European Union Emissions Trading System (“EU ETS”), the California Carbon Allowance
(“CCA”), and Regional Greenhouse Gas Initiative (“RGGI”).
The Fund is a passive investment
vehicle that does not seek to generate returns beyond tracking the returns of the Index. This means the Sponsor does not speculatively
sell bitcoin and/or Carbon Credit Futures at times when prices are high or speculatively acquire such assets at low prices in the expectation
of future price increases.
Bitcoin and the Bitcoin Network
Bitcoin is a digital commodity
native to the Bitcoin Network. Bitcoin is not issued by any government, bank or central organization, and instead exist on the Bitcoin
Network. Bitcoin transaction and ownership records are reflected on the Bitcoin Blockchain, which is a digital public record or ledger
of all transactions completed on the Bitcoin Network. It is widely understood that no single entity owns or operates the Bitcoin Network.
The Bitcoin Network is accessed through software, and software governs bitcoin creation, movement and ownership. The infrastructure of
the Bitcoin Network is collectively maintained on a distributed basis by the Bitcoin Network’s participants, consisting of: (i)
validators or “miners,” who run special software to validate transactions; (ii) “developers,” who maintain and
contribute updates to the Bitcoin Network’s source code; and (iii) “users,” who download and maintain on their individual
computer a full or partial copy of the Bitcoin Blockchain and related software. Anyone can be a user, developer, or miner. The value of
bitcoin is determined, in part, by the supply of, and demand for, bitcoin in the global markets for the trading of bitcoin, market expectations
for the adoption of bitcoin as a decentralized store of value, the number of merchants and/or institutions that accept bitcoin as a form
of payment, and the volume of peer-to-peer transactions, among other factors.
Bitcoin has only a physical
existence in the record of transactions on the Bitcoin Blockchain. The Bitcoin Blockchain is a public record of the creation, custody
and flow of funds of bitcoin, showing every transaction effected on the Bitcoin Blockchain among users’ online “digital wallets”
where their bitcoin are effectively stored. Miners authenticate and bundle bitcoin transactions sequentially into files called “blocks,”
which requires performing computational work to solve a cryptographic puzzle set by the Bitcoin Network’s software protocol. Since
each solved block contains a reference to the previous block, they form a chronological “chain” back to the first bitcoin
transaction. Copies of the Bitcoin Blockchain are stored in a decentralized manner on the computers of each individual Bitcoin Network
full node (i.e., any user who chooses to maintain on their computer a full copy of the Bitcoin Blockchain, as well as related software).
Each bitcoin is associated with a set of unique cryptographic “keys,” in the form of a string of numbers and letters, which
allow whoever is in possession of the private key to assign that bitcoin in a transfer that the Bitcoin Network will recognize. Bitcoin
may be sent or received through users’ digital wallets by using public and private keys that are part of the Bitcoin Network’s
cryptographic security mechanism.
The Bitcoin Network is a technological
innovation developed in the last fifteen years, and the bitcoin that are created, transferred, used and stored by entities and individuals
have certain features associated with several types of assets, most notably commodities and currencies. Many U.S. regulators, including
the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”), the CFTC, the U.S. Internal Revenue
Service (“IRS”), and state regulators, including the New York Department of Financial Services (“NYDFS”), have
made official pronouncements or issued guidance or rules regarding the treatment of bitcoin and other digital currencies. However, other
U.S. and state agencies have not made official pronouncements or issued guidance or rules regarding the treatment of bitcoin. Similarly,
the treatment of bitcoin and other digital currencies is often uncertain or contradictory in other countries. The regulatory uncertainty
surrounding the treatment of bitcoin creates risks for the Fund and its Shares. See “Risk Factors—Risks Related to Bitcoin,
the Bitcoin Network and Bitcoin Trading Markets.”
Bitcoin Valuation
The value of bitcoin is determined
by the value that various digital asset market participants place on bitcoin through their transactions. The most common means of determining
the value of a bitcoin is by surveying one or more digital asset exchanges where bitcoin is traded publicly and transparently. On exchanges,
bitcoin is traded with publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the U.S.
dollar. OTC dealers or market makers do not typically disclose their data. There are many digital asset exchanges operating worldwide,
representing a substantial percentage of bitcoin buying and selling activity, and providing the most data with respect to prevailing valuation
of bitcoin. The Fund uses the same methodology as utilized by the Index to determine the value of its bitcoin. Digital asset trading platforms
meeting the criteria set out by Vinter, as described further herein, are used to value bitcoin. Vinter reviews the spot price on all eligible
exchanges at 4:00 p.m. Eastern Time and values bitcoin as the median spot price amongst eligible digital asset exchanges. The Sponsor
believes this methodology provides a reasonable valuation of the spot price of bitcoin that is reasonably resistant to price manipulation
of bitcoin.
Carbon Credit Futures
Futures contracts are
standardized contracts that obligate the parties to buy or sell an asset at a predetermined price and date in the future. The Carbon
Credit Futures that comprise the sleeve of the Index are linked to the value of emissions allowances issued under the EU ETS, CCA
and RGGI. Commodity futures contracts linked to the value of emission allowances are known as “Carbon Credit Futures”.
The Fund will invest in the Carbon Credit Futures that comprise the Index directly. As explained below, the Index rolls the Carbon
Credit Futures contracts on a monthly basis. One factor determining the total return from investing in futures contracts is the
price relationship between soon to expire contracts and later to expire contracts. Under certain market conditions, the Fund may
have to pay more for longer maturity contracts to replace existing shorter maturity contracts about to expire. This situation is
known as “contango” in the futures markets. In the event of a prolonged period of contango, and absent the impact of
rising or falling prices for Carbon Credit Futures contracts, this could have a negative impact on the Fund’s NAV and total
return, which in turn may have a negative impact on your investment in the Fund. Alternatively, the market for Carbon Credit Futures
contracts may be in a state of backwardation (i.e., when the price of the futures contract in the future is less than the
current price), in which case the Fund will buy later-to-expire contracts for a lower price than the soon-to-expire contracts it
sells.
The Index is comprised of
futures contracts on emissions allowances issued by various “cap-and-trade” regulatory regimes that seek to reduce greenhouse
gas (“GHG”) emissions over time. A cap-and-trade regime typically involves a regulator setting a limit on the total amount
of specific greenhouse gasses (such as CO2) that can be emitted by regulated entities. Capping and reducing the cap on GHGs
is viewed as a key policy tool in reaching climate change objectives. The regime is designed to promote sustainable development by putting
a price on carbon emissions. The regulator will then issue or sell “emissions allowances” to regulated entities, which in
turn may buy or sell the emissions allowances to the open market. To the extent that the regulator may then reduce the cap on emission
allowances, regulated entities are incentivized to reduce their emissions; otherwise, they must purchase additional emission allowances
on the open market, where the price of such allowances will likely be increasing as a result of demand, and regulated entities that reduce
their emissions will be able to sell unneeded emission allowances for profit. An emission allowance or carbon credit is a unit of emissions
(typically one ton of CO2) that the owner of the allowance or credit is permitted to emit. Futures contracts linked to the
value of emission allowances are known as “carbon credit futures”.
The Index
The Index provides
exposure to the daily price performance of bitcoin and Carbon Credit Futures by aiming to track the financial performance of
investing in a portfolio of 80% bitcoin and 20% Carbon Credit Futures. In providing this exposure, the Index seeks to provide
exposure to bitcoin with an environmentally responsible approach through offsetting carbon emissions. Invierno AB, Reg. No.
559207-4172, Box 5193, 10244 Stockholm, Sweden (“Vinter”) is the benchmark administrator for the bitcoin portion of the
Index. Vinter is also the central recipient of input data and evaluates the integrity and accuracy of the input data. Solactive AG
(“Solactive”) is the benchmark administrator for the Carbon Credit Futures portion of the Index and calculates the value
of the Carbon Credit Futures portion of the Index as well as the value of the overall Index.
Vinter administers and calculates
the bitcoin sleeve of the Index. Solactive is the calculation agent of the Index and calculates the value of the Index and the carbon
credit portion of the Index. To calculate the value of bitcoin, Vinter selects what it considers to be reputable bitcoin exchanges and
takes the last price on each exchange at 4:00 pm ET. Vinter then takes the median price across these exchanges to determine the value
of bitcoin.
The Carbon Credit Futures
portion of the Index is built using a combination of three carbon credit indices, each of which is calculated and administered by a third
party: the Solactive Carbon European Union Allowance Futures ER Index, Solactive California Carbon Rolling Futures ER Index, and the Solactive
Futures Series Regional Greenhouse Gas Rolling Futures Index. The combination of exposure to the three underlying indices provides the
Index with returns tied to futures contracts on carbon credits connected to EU ETS, CCA and RGGI. The Index includes only Carbon Credit
Futures that mature in December of the next one to two years. The Index includes front-month futures contracts that are rolled each month.
The Index rolls over five business days into the new contract, with an expiration of December of the next calendar year. The Index rebalances
quarterly, beginning at the end of January.
Risk Summary
An investment in the Fund
involves a high degree of risk uncertainty. Some of the risks associated with an investment in the Fund are summarized below. A more extensive
discussion of these risks appears in the section titled “Risk Factors” which begins on page [ ]. These risks include,
but are not limited to, the following:
Risks Related
to Bitcoin, the Bitcoin Network and Bitcoin Trading Markets
| ● | The trading prices of many digital assets, including bitcoin, have experienced extreme volatility in recent
periods and may continue to do so. The Fund invests 80% of its assets in bitcoin, the value of which is highly volatile and subject to
fluctuations due to a number of factors. Future volatility, including declines in the trading prices of bitcoin, could have a material
adverse effect on the value of Shares, and Shares could lose significant value. |
| ● | Digital assets represent a new and rapidly evolving industry, and the value of the Shares in part depends
on the acceptance of bitcoin. Competition from the emergence or growth of other digital assets or methods of investing in bitcoin could
negatively impact the price of bitcoin and therefore the value of the Shares. |
| ● | The value of Shares is subject to a number of factors relating to the fundamental investment characteristics
of bitcoin as a digital asset including the fact that digital assets such as bitcoin are bearer instruments and loss, theft, destruction
or compromise of associate private keys could result in permanent loss of the asset. |
| ● | Due to the unregulated nature and lack of transparency surrounding the operations of digital asset exchanges,
they may experience fraud, security failures or operational problems, which may adversely affect the value of bitcoin and, consequently,
the value of the Shares. |
| ● | The 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 value of bitcoin, and the Shares. |
| ● | Changes in the governance of a digital asset network may not receive sufficient support from users and
miners, which may negatively affect that digital asset network’s ability to grow and respond to changes. |
Risks Related to the Custody
of Bitcoin
| ● | Failure to safeguard and manage the Fund’s bitcoin could adversely impact the value of Shares. |
| ● | Security threats to the Fund’s account with the Bitcoin Custodian could result in the halt of Fund
operations, a loss of Fund assets, or damage to the Fund’s reputation, among others. Any of these factors could result in a reduction
in the price of Shares. |
| ● | Due to the nature of private keys, bitcoin transactions are irrevocable, and stolen or incorrectly transferred
bitcoin may be irretrievable. Any incorrectly executed bitcoin transactions could adversely affect an investment in the Fund. Loss, theft,
destruction or compromise of private keys could result in permanent loss of the asset. |
| ● | The lack of full insurance and Shareholders’ limited rights of legal recourse against the Fund,
Trustee, Administrator, and/or the Bitcoin Custodian exposes the Fund and its shareholders to the risk of loss of the Fund’s bitcoin,
for which no person or entity is liable. |
Risks Related
to the Regulation of Bitcoin
| ● | Digital asset markets in the U.S. exist in a state of regulatory uncertainty, and adverse legislative
or regulatory developments could significantly harm the value of bitcoin or the Shares, such as by banning, restricting or imposing onerous
conditions or prohibitions on the use of bitcoin, mining activity, digital wallets, the provision of services related to trading and custodying
bitcoin, the operation of the Bitcoin Network, or the digital asset markets generally. |
| ● | The U.S. federal income tax treatment of transactions in digital assets is unclear. |
Risks Related to Carbon Credit
Futures and the Fund’s Status as a Commodity Pool
| ● | There is no assurance that cap-and-trade regimes will continue to exist. New technologies may arise that
diminish or eliminate the need for cap-and-trade markets. Emissions limits allocations may not properly reflect the amount needed for
a stable price of credits, which can lead to large price volatility. |
| ● | Legislative or regulatory changes may impact the operation of the Fund, the regulation and enforcement
of cap-and-trade regimes, the competitive landscape and/or market behavior regarding cap-and-trade regimes. New regulation relating to
cap-and-trade markets may arise, which could negatively impact the value underlying carbon credits, the liquidity of said markets and
the Fund. |
| ● | Investments in commodity-linked derivatives, such as Carbon Credit Futures, involve risks that are greater
than, and different from, investing directly in the referenced commodity. Commodity-linked derivatives may also be subject to greater
price volatility than the underlying reference asset. |
| ● | The Fund obtains exposure to Carbon Credit Futures with multiple geographic focuses, and accordingly is
subjected to the accompanying geographic risks. The Fund may also experience risks related to the energy, agriculture and metal sectors,
among others, in connection with its exposure to Carbon Credit Futures. |
| ● | In some cases, the near-month Carbon Credit Futures price will be lower than the next month’s contract
prices (i.e., “contango”). In the event of a prolonged period of contango, and absent the impact of rising or falling
prices of the underlying carbon credit, this could have a significant negative impact on the Fund’s NAV and total return, and you
could incur a partial or total loss of your investment in the Fund. |
| ● | Position limits and margin requirements, among other limitations, may have the potential to cause tracking
error, which could cause the price of Shares to substantially vary from the Index. |
| ● | The Fund utilizes futures commission merchants (“FCMs”) to buy and sell its futures contracts.
Volatility in the Carbon Credit Futures may lead its FCMs to impose risk mitigation procedures that could limit the Fund’s investment
in Carbon Credit Futures beyond the accountability or position limits imposed by the futures contract exchange. An FCM could impose a
financial ceiling on initial margin that could change and become more or less restrictive on the Fund’s activities depending upon
a variety of conditions beyond the Sponsor’s control. If the Fund’s current FCMs were to impose position limits, or if any
other FCM with which the Fund establishes a relationship in the future were to impose position limits, the Fund’s ability to meet
its investment objective could be negatively impacted. The Fund continues to monitor and manage its existing relationships with its FCMs
and will continue to seek additional relationships with FCMs as needed. |
| ● | The Fund is deemed a “commodity pool” and is therefore subject to regulation under the CEA
and CFTC rules. The Fund and the Sponsor, as the Fund’s CPO, is subject to additional laws, regulations and enforcement policies,
all of which may affect the operations of the Fund. |
| ● | Regulation in the commodity-linked derivatives markets is extensive and constantly changing. Future regulatory
developments are impossible to predict, but may significantly and adversely affect the operations and value of the Fund. |
Risks Related
to the Index
| ● | The Index has a limited history. The Bitcoin Price could fail to track the global bitcoin price and a
failure of the Bitcoin Price could adversely affect the value of Shares. |
| ● | The price used by the Index to calculate the value of bitcoin may be volatile, which could adversely affect
the value of Shares. |
| ● | The Index price being used to determine the net asset value of the Fund may not be consistent with GAAP.
To the extent the Fund’s financial statements are determined using a different pricing source that is consistent with GAAP, the
NAV reported in the Fund’s periodic financial statements may differ, and may differ significantly, from the Fund’s NAV determined
using the pricing of the Index. |
Risks Related
to the Fund and the Shares
| ● | The Fund is new and an investment in the Fund may have more risks than an investment in an established,
larger fund. Further, the Sponsor and its management have a limited history of operating investment vehicles like the Fund. |
| ● | The Fund has a limited number of financial institutions that may act as Authorized Purchasers. If regulatory
changes or interpretations of an Authorized Purchaser’s, the Fund’s or the Sponsor’s require the regulation of an Authorized
Purchaser, the Fund or the sponsor as a money service business under the regulations promulgated by FinCen, an Authorized Purchaser, the
Fund, or the Sponsor may be required to register and comply with such regulations, which could result in extraordinary, recurring and/or
non-recurring expenses. |
| ● | There are certain risks and tax considerations due to the Fund’s cash transactions for the creation
and redemption processes. |
| ● | Unanticipated difficulties with respect to the issuance or redemption of Baskets, including but not limited
to the withdrawal of Authorized Purchasers, may impact the arbitrage mechanism intended to keep the trading price of Shares closely linked
to its NAV and liquidity of the Shares may be adversely impacted. |
| ● | Potential conflicts of interest may arise among the Sponsor or its affiliates and the Fund. The Trust
Agreement modifies and restricts the default fiduciary duties under the DSTA, which could permit them to favor their own interests to
the detriment of the Fund and its Shareholders under Delaware law. That notwithstanding, the Sponsor is a registered investment adviser
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and is subject to fiduciary duties in connection
therewith. |
Custody of the Fund’s Assets
The Fund’s assets will
be split among three custodians. The Trust, on behalf of the Fund, intends to appoint Gemini Trust Company, LLC (“Gemini”
and the “Bitcoin Custodian”) for the Fund’s bitcoin holdings. Separately, [____] (the “Non-Digital Custodian”
and collectively with the Bitcoin Custodian, the “Custodians”) will serve as the Fund’s custodian with respect to its
cash and cash equivalents investments, as well as any investments in connection with its investments in Carbon Credit Futures.
The Trust, on behalf of the
Fund, has entered into a [ ] agreement with Gemini (the “Bitcoin Custody Agreement”), pursuant to which the Bitcoin Custodian
will custody all of the Fund’s bitcoin. Pursuant to the Bitcoin Custody Agreement, the Bitcoin Custodian establishes accounts that
hold the bitcoins deposited with the Bitcoin Custodian on behalf of the Fund. The Fund has also entered into a [ ] agreement with the
Non-Digital Custodian (the “Non-Digital Custody Agreement”) pursuant to which the Non-Digital Custodian will custody the Fund’s
investments in cash and cash equivalents in connection with the investments in the Carbon Credit Futures.
With respect to the settlement
of Shares in response to the placement of creation orders and redemption orders from Authorized Purchasers, the Sponsor will retain discretion
with respect to which of the Custodians and accompanying assets is selected to facilitate the respective order.
Custody of Bitcoin
The Fund is responsible for
acquiring bitcoin from a Bitcoin Trading Counterparty. Once the bitcoin has been transferred to the applicable Bitcoin Custodian, it will
be stored pursuant to the terms of the applicable Bitcoin Custody Agreement.
Bitcoin private keys are stored
in two different forms: “hot” storage, whereby the private keys are stored on secure, internet-connected devices (a “hot
wallet”), and “cold” storage, where digital currency private keys are stored completely offline. The Bitcoin Custody
Agreement requires the Bitcoin Custodian to hold the Fund’s bitcoin in cold storage, unless required to facilitate withdrawals as
a temporary measure. The Bitcoin Custodian will use segregated cold storage bitcoin addresses for the Fund which are separate from the
bitcoin addresses that the Bitcoin Custodian uses for its other customers and which are directly verifiable via the Bitcoin Blockchain.
The Bitcoin Custodian will at all times record and identify in its books and records that such bitcoins constitute the property of the
Fund. The Bitcoin Custodian will not withdraw the Fund’s bitcoin from the Fund’s account with the Bitcoin Custodian, or loan,
hypothecate, pledge or otherwise encumber the Fund’s bitcoin, without the Fund’s instruction.
The Sponsor has evaluated
the Bitcoin Custodian’s policies, procedures, and controls for safekeeping, exclusively possessing, and controlling the Fund’s
bitcoin holdings and believes these are designed consistent with accepted industry practices to protect against theft, loss, and unauthorized
and accidental use of the private keys. Notwithstanding the Sponsor’s evaluation, the Sponsor does not control the Bitcoin Custodian’s
operations or implementation of such policies, procedures and controls and there can be no assurance that they will actually work as designed
or prove to be successful in safeguarding the Fund’s assets against all possible sources of theft, loss or damage.
While the Bitcoin Custodian
carries insurance, its insurance does not cover any loss in value of bitcoin and only covers losses caused by certain events such as fraud
or theft and, in such covered events, it is unlikely the insurance would cover the full amount of any losses incurred by the Fund. The
insurance maintained by the Bitcoin Custodian is shared among all of the Bitcoin Custodian’s customers, is not specific to the Fund
or to any customers holding bitcoin with the Bitcoin Custodian, and may not be available or sufficient to protect the Fund from all possible
losses or sources of losses.
Custody Relating to the Carbon
Credit Futures
The Fund will maintain an
investment in Carbon Credit Futures, the notional amount of which will match the exposure of the Index. At any given time, however, most
of the Fund’s investments are in cash and cash equivalents that support the Fund’s positions in the Carbon Credit Futures.
Instead of depositing the entirety of the notional amount of the Carbon Credit Futures contracts with the FCM, the Fund posts a margin
deposit, approximately [__]% of the notional amount, with the FCM. To secure its Carbon Credit Futures obligations, the Fund deposits
the required margin with the FCM and separately holds its remaining assets through the Non-Digital Custodian, specifically in cash or
cash equivalents. Cash equivalents shall mean such investments that, in the view of the Sponsor, are of high credit quality and liquidity
and can be converted to cash quickly. Such investments shall include: (a) cash; (b) debt securities issued or directly or indirectly fully
guaranteed or insured by the United States or any agency or instrumentality thereof (such as U.S. Treasury Bills); (c) commercial paper
or finance company paper of sufficient credit quality in the view of the Sponsor; or (d) money market mutual funds. Additionally, the
Fund will implement foreign exchange dollarization using spot market or foreign exchange forwards and customary foreign exchange hedging
instruments. Such remaining assets may be used to meet future margin payments the Fund may be required to make on its Carbon Credit Futures.
The Fund earns interest and other income from the cash equivalents that it purchases, and on the cash, it holds through the Custodian
or other financial institutions. The earned interest and other income increase the Fund’s NAV. The Fund applies the earned interest
and other income to the acquisition of additional investments or uses it to pay its expenses. When the Fund reinvests the earned interest
and other income, it makes investments that are consistent with its investment objectives.
Trust Structure
The Trust is a Delaware statutory
trust, organized on [February 10, 2023], that operates pursuant to the First Amended and Restated Declaration of Trust and Trust Agreement
between the Sponsor and the Trustee (the “Trust Agreement”). The Trust is governed by the provisions of the Trust Agreement.
The Fund is a series of the Trust. Each Share of the Fund represents a fractional undivided beneficial interest in the net assets of the
Fund. The Trust’s Sponsor is Tidal Investments LLC, a Delaware limited liability company. The Shares are not obligations of, and
are not guaranteed by, the Sponsor or any of its subsidiaries or affiliates. Under the Delaware Limited Liability Company Act and the
governing documents of the Trust, the Sponsor is not responsible for the debts, obligations and liabilities of the Trust solely by reason
of being the Sponsor; provided that the Sponsor has assumed responsibility for the payment of certain Fund expenses.
The Sponsor arranged for the
creation of the Trust and the establishment of its series, the Fund, and is arranging for the registration of the Shares for their public
offering in the United States (“U.S.”) and their listing on the Exchange. The Sponsor is obligated to assume and pay the following
fees and expenses of the Trust: the Trustee’s fee payable under the Trust Agreement, the Custodians Fees (as defined herein), the
Transfer Agent Fee (as defined herein), the Marketing Fee (as defined herein), applicable license fees, including the licensing fees related
to the Index License Agreement (as defined herein), the Administrator Fee (as defined herein), fees and expenses related to trading of
Shares on the Exchange (including marketing, legal and audit fees and expenses), legal expenses, audit fees, regulatory fees, including
any fees relating to the registration of the Shares with the SEC, printing and mailing costs and costs of maintaining the Trust’s
website. The Sponsor also paid the costs of the Trust’s organization.
As interests in a Delaware
statutory trust, the Shares do not possess the rights normally associated with the ownership of shares of a corporation (including, for
example, the right to bring shareholder oppression and derivative actions). In addition, the Shares have limited voting and distribution
rights (for example, shareholders do not have the right to elect directors, as the Trust does not have a board of directors, and generally
will not receive regular distributions of the net income and capital gains earned by the Fund). Shareholders have no voting rights except
as expressly provided in the Trust Agreement.
The general role, responsibilities
and regulation of the Sponsor, Trustee, Administrator, and Custodians are further described on pages [•], [•], [•], [•]
and [•], respectively. Detailed descriptions of certain specific rights and duties of the Sponsor, Trustee, Administrator, and Custodians
begin on page [•].
Emerging Growth Company and Smaller Reporting
Company Status
The Fund is an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Fund
is an emerging growth company, it may take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404(b) of the Sarbanes–Oxley Act of 2002 (the “Sarbanes-Oxley Act”),
reduced disclosure obligations regarding executive compensation in the Trust’s periodic reports and audited financial statements
in this prospectus, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation and
shareholder advisory votes on “golden parachute” compensation and exemption from any rules requiring mandatory audit firm
rotation and auditor discussion and analysis and, unless otherwise determined by the SEC, any new audit rules adopted by the Public Company
Accounting Oversight Board (the “PCAOB”).
Under the JOBS Act, the Fund
will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year during which the Fund has total annual
gross revenues of $1.235 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the completion of this
offering; (iii) the date on which the Fund has, during the previous three-year period, issued more than $1 billion in non-convertible
debt; or (iv) the date on which the Fund is deemed to be a “large accelerated filer” (i.e., an issuer that (1) has more than
$700 million in outstanding equity held by non-affiliates and (2) has been subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) for at least 12 calendar months and has filed at least one annual report on Form
10-K.)
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 Securities 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; however, the Fund is choosing
to “opt out” of such extended transition period, and as a result, the Fund will comply with new or revised accounting standards
on the relevant dates on which adoption of such standards is required for companies that are not “emerging growth companies.”
Section 107 of the JOBS Act provides that the Fund’s decision to opt out of the extended transition period for complying with
new or revised accounting standards is irrevocable.
We are also a “smaller
reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer
an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will
be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by
non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less
than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by
non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.
U.S. Federal Income Tax Considerations
The Fund, as a series of the
Trust, will be classified as a corporation for U.S. federal income tax purposes. As a result, the Fund will be obligated to pay applicable
U.S. federal and state corporate income taxes on its taxable income. See discussion under “Material U.S. Federal Income Tax Consequences”
below.
Breakeven Amounts
The Fund will be profitable
only if returns from the Fund’s investments exceed its “breakeven amount.” The return that the Fund would need to achieve
during one-year to offset the Fund’s estimated fees, costs and expenses, net of any interest income earned by the Fund on its investments
is [ ]% or $[ ]. For purposes of this breakeven analysis, an initial selling price of $25.00 per Share, is assumed. The breakeven analysis
is an approximation only and assumes a constant month-end Net Asset Value. Estimated amounts do not represent actual results, which may
be different. It is not possible to predict whether the Fund will break even at the end of the first twelve months of an investment or
during any other period. See “Charges—Breakeven Analysis” for more detailed information.
Defined Terms
For a glossary of defined
terms, see the “Glossary of Defined Terms” herein.
Principal Offices
The Fund is a series of the Trust. The principal
office and telephone number of the Trust and the Sponsor is located at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204,
and is [(844)-986-7700].
THE
OFFERING
Shares offered by the Trust: |
Shares representing units of fractional undivided beneficial interest in, and ownership of, the Fund. |
Use of Proceeds: |
The proceeds of offering the Shares received by the Fund consist of cash, which will be invested in accordance with the Fund’s investment objective and strategies described herein. |
NYSE Symbol: |
BTCK |
CUSIP: |
[ ] |
Net Asset Value: |
As described in more detail below in “Calculation
of NAV” “NAV” means the total assets of the Fund, less any liabilities of the Fund. Included in the assets of the Fund
are its investments in bitcoin and the value of the Fund’s futures contracts. The Fund’s NAV on a per Share basis is determined
as of the earlier of the close of the NYSE or [4:00] p.m. (ET) on each day that the Exchange is open for trading. [The Administrator is
granted the exclusive authority to determine the Fund’s NAV and its NAV per Share under the Trust Agreement].
The Fund values bitcoin using the same methodology
as the Bitcoin Price. Digital asset trading platforms meeting the criteria set out by Vinter are used as the basis for which Vinter determines
the value of bitcoin. Vinter reviews the spot price on all eligible exchanges at 4:00 p.m. eastern and values bitcoin as the median spot
price amongst eligible exchanges. The Sponsor believes this methodology provides a reasonable valuation of the spot price of bitcoin that
is reasonably resistant to price manipulation of bitcoin.
In order to provide updated information relating
to the Fund for use by Shareholders and market professionals, an updated intraday indicative value (“IIV”) will be calculated
and disseminated each trading day. The IIV will be calculated by using the prior day’s closing NAV per Share of the Fund as a base
and updating that value throughout the trading day to reflect changes in the value of the Fund’s assets. [___] calculates and disseminates
the IIV approximately every 15 seconds. IIV should not be viewed as an actual real time update of the NAV of the Fund.
|
Creation and Redemption:
|
The Fund issues Shares on an ongoing basis, but
only in one or more whole Baskets. The Fund also intends to redeem Shares in Baskets on an ongoing basis from Authorized Purchasers (defined
below).
While investors will purchase and sell Shares
through their broker-dealer, the Fund continuously offers creation baskets consisting of [10,000] Shares (“Creation Baskets”)
at their NAV to certain parties who have entered into an agreement with the Sponsor and the Administrator (“Authorized Purchasers”).
The Fund issues and redeems Baskets each day that the Exchange is open for regular trading.
The creation and redemption of Baskets requires
the delivery of the cash equivalent of the NAV of the aggregate Shares comprising the Basket. Authorized Purchasers, in turn, may sell
such Shares received from a Creation Basket on the exchange at the trading price of the Shares on the Exchange. Shares may trade in the
secondary market at prices that are lower (a discount) or higher (a premium) than the NAV per Share. See “Description of Creation
and Redemption of Shares” for additional information regarding the Fund’s procedures regarding the issuance and redemption
of Baskets.
|
Fund expenses: |
The Fund’s primary ordinary recurring expense
is expected to be the remuneration due to the Sponsor (the “Management Fee”). The Management Fee will be in an amount equal
to [ ]% per annum of the daily NAV of the Trust. The Management Fee accrues daily and payments of the Management Fee will occur monthly
in arrears.
The Management Fee is paid by the Fund to the
Sponsor as compensation for services performed under the Trust Agreement, including the management of the Fund’s business and affairs.
The Sponsor has agreed to pay certain operating expenses of the Fund (except for litigation expenses and other extraordinary expenses)
out of the Management Fee. The Fund pays all other transaction related fees and expenses charged in connection with trading activities
for the Fund’s investments and for maintenance of its CFTC regulatory status as a commodity pool. [The Fund bears other transaction
costs related to the FCM capital requirements on a monthly basis]. The Fund may also incur certain extraordinary, non-recurring expenses
and indemnification expenses that are not contractually assumed by the Sponsor. See “Expenses” for additional information.
The Sponsor from time to time may sell bitcoin,
which may be facilitated by the Bitcoin Custodian, in such quantity as is necessary to permit payment of the Management Fee and may also
sell bitcoin, in such quantities as may be necessary to permit the payment of Fund expenses and liabilities not assumed by the Sponsor.
|
Inter-Series Limitation on Liability: |
While the Fund is a separate series of the Trust, additional series may be created in the future. The Trust has been formed and will be operated with the goal that the Fund and any other series of the Trust will be liable only for obligations of such series, and a series will not be responsible for or affected by any liabilities or losses of or claims against any other series. If any creditor or shareholder in any particular series (such as the Fund) were to successfully assert against a series a claim with respect to its indebtedness or shares, the creditor or shareholder could recover only from that particular series and its assets. Accordingly, the debts and other obligations incurred, contracted for or otherwise existing solely with respect to a particular series would be enforceable only against the assets of that series, and not against any other series or the Trust generally or any of their respective assets. The assets of the Fund and any other series will include only those funds and other assets that are paid to, held by or distributed to the series on account of and for the benefit of that series, including, without limitation, amounts delivered to the Trust for the purchase of shares in a series. |
Termination events: |
The Trust and the Fund shall continue in existence
from the date of their formation in perpetuity, unless the Trust or the Fund, as the case may be, is sooner terminated upon the occurrence
of certain events specified in the Trust Agreement, including the following: (1) the filing of a certificate of dissolution or cancellation
of the Sponsor or revocation of the Sponsor’s charter or the withdrawal of the Sponsor, unless Shareholders holding a majority of
the outstanding Shares of the Trust, voting together as a single class, elect within ninety (90) days after such event to continue the
business of the Trust and appoint a successor Sponsor; (2) the occurrence of any event which would make the existence of the Trust or
the Fund unlawful; (3) the suspension, revocation, or termination of the Sponsor’s registration as a CPO with the CFTC or membership
with the NFA; (4) the insolvency or bankruptcy of the Trust or the Fund; (5) a vote by the Shareholders holding at least seventy-five
percent (75%) of the outstanding Shares of the Trust, voting together as a single class, to dissolve the Trust subject to certain conditions;
(6) the determination by the Sponsor to dissolve the Trust or the Fund, subject to certain conditions; (7) the Trust is required to be
registered as an investment company under the Investment Company Act; and (8) the Depository Trust Company (“DTC”) is unable
or unwilling to continue to perform its functions and a comparable replacement is unavailable. Upon termination of the Fund, the affairs
of the Fund shall be wound up and all of its debts and liabilities discharged or otherwise provided for in the order of priority as provided
by law. The fair market value of the remaining assets of the Fund shall then be determined by the Sponsor. Thereupon, the assets of the
Fund shall be distributed pro rata to the Shareholders in accordance with their Shares.
See “Additional Information About the Trust—Description
of the Trust Agreement—Termination of the Trust” for additional information.
|
Authorized Purchasers: |
Baskets may be created or redeemed only by Authorized
Purchasers. Each Authorized Purchaser must: (i) be a registered broker-dealer; and (ii) have entered into an Authorized Purchaser
Agreement with the Sponsor and the Administrator. The Authorized Purchaser Agreement provides the procedures for the issuance and redemption
of Baskets. See “Description of Creation and Redemption of Shares” for additional information.
The Trust has engaged [ ] as Authorized Purchasers.
Additional Authorized Purchasers may be added at any time, subject to the discretion of the Sponsor.
|
Clearance and settlement: |
Individual certificates are not issued for the Shares. Rather, Shares are represented by one or more global certificates, which are deposited by the Transfer Agent with the DTC and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Beneficial interests in Shares are held through DTC’s book-entry system. Accordingly, Shareholders are limited to: (1) purchasers in DTC such as banks, brokers, dealers and trust companies, (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC purchaser, and (3) those who hold interests in the Shares through DTC purchasers or indirect purchasers, in each case who satisfy the requirements for transfers of Shares. DTC purchasers acting on behalf of investors holding Shares through such DTC purchasers’ accounts in DTC will follow the delivery practice applicable to securities eligible for DTC’s Same-Day Funds Settlement System. Shares are credited to DTC purchasers’ securities accounts following confirmation of receipt of payment. |
RISK
FACTORS
You should consider carefully
the risks described below before making an investment decision. You should also refer to the other information included in this prospectus,
including the Trust’s financial statements and related notes thereto.
Risks Related to Bitcoin, the Bitcoin Network,
and Bitcoin Trading Markets
The trading prices of
many digital assets, including bitcoin, have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility
in the future, including further declines in the trading prices of bitcoin, could have a material adverse effect on the value of the Shares
and the Shares could lose significant value.
The trading prices of many
digital assets, including bitcoin, have experienced extreme volatility in recent periods and may continue to do so. For instance, there
were steep increases in the value of certain digital assets, including bitcoin, over the course of 2021, and multiple market observers
asserted that digital assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2022
in digital asset trading prices, including for bitcoin. These episodes of rapid price appreciation followed by steep drawdowns have occurred
multiple times throughout bitcoin’s history, including in 2011, 2013-2014, and 2017-2018, before repeating again in 2021-2022. Over
the course of 2023, bitcoin prices have continued to exhibit extreme volatility.
Extreme volatility may persist
and the portion of the Shares’ value that is tied to bitcoin may significantly decline in the future without recovery. The digital
asset markets may still be experiencing a bubble or may experience a bubble again in the future. For example, in the first half of 2022,
each of Celsius Network, Voyager Digital Ltd., and Three Arrows Capital declared bankruptcy, resulting in a loss of confidence in participants
of the digital asset ecosystem and negative publicity surrounding digital assets more broadly. In November 2022, FTX Trading Ltd. (“FTX”),
one of the largest digital asset exchanges by volume at the time, halted customer withdrawals amid rumors of the company’s liquidity
issues and likely insolvency, which were subsequently corroborated by its CEO. Shortly thereafter, FTX’s CEO resigned and FTX and
many of its affiliates filed for bankruptcy in the United States, while other affiliates have entered insolvency, liquidation, or similar
proceedings around the globe, following which the U.S. Department of Justice brought criminal fraud and other charges, and the SEC and
CFTC brought civil securities and commodities fraud charges, against certain of FTX’s and its affiliates’ senior executives,
including its former CEO. In addition, several other entities in the digital asset industry filed for bankruptcy following FTX’s
bankruptcy filing, such as BlockFi Inc. and Genesis Global Capital, LLC (“Genesis”). In response to these events (collectively,
the “2022 Events”), the digital asset markets have experienced extreme price volatility and other entities in the digital
asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital asset markets. These
events have also negatively impacted the liquidity of the digital asset markets as certain entities affiliated with FTX engaged in significant
trading activity. If the liquidity of the digital asset markets continues to be negatively impacted by these events, digital asset prices,
including bitcoin, may continue to experience significant volatility or price declines and confidence in the digital asset markets may
be further undermined. In addition, regulatory and enforcement scrutiny has increased, including from, among others, the Department of
Justice, the SEC, the CFTC, the White House and Congress, as well as state regulators and authorities. These events are continuing to
develop and the full facts are continuing to emerge. It is not possible to predict at this time all of the risks that they may pose to
the Fund, its service providers or to the digital asset industry as a whole.
Extreme volatility in the
future, including further declines in the trading prices of bitcoin, could have a material adverse effect on the value of the Shares and
the Shares could lose a material amount of their value.
Digital assets represent
a new and rapidly evolving industry, and the value of the Shares in part depends on the acceptance of bitcoin.
The Bitcoin Network was first
launched in 2009 and bitcoin was the first cryptographic digital assets created to gain global adoption and critical mass. Although the
Bitcoin Network is the most established digital asset network, the Bitcoin Network and other cryptographic and algorithmic protocols governing
the issuance of digital assets represent a new and rapidly evolving industry that is subject to a variety of factors that are difficult
to evaluate. For example, the realization of one or more of the following risks could materially adversely affect the price of bitcoin
and therefore the value of Shares:
| ● | Bitcoin has only recently become selectively accepted as a means of payment by retail and commercial outlets,
and use of bitcoin by consumers to pay such retail and commercial outlets remains limited. Banks and other established financial institutions
may refuse to process funds for bitcoin transactions; process wire transfers to or from digital asset exchanges, bitcoin-related companies
or service providers; or maintain accounts for persons or entities transacting in bitcoin. As a result, the prices of bitcoin may be primarily
determined by speculators and miners, thus contributing to price volatility that makes retailers less likely to accept it as a form of
payment in the future. |
| ● | Banks may not provide banking services, or may cut off banking services, to businesses that provide digital
asset-related services or that accept digital assets as payment, which could dampen liquidity in the market and damage the public perception
of digital assets generally or any one digital asset in particular, such as bitcoin, and its utility as a payment system, which could
decrease the price of digital assets generally or individually. Further, the lack of availability of banking services could prevent the
Fund from being able to complete the timely liquidation of bitcoin and withdrawal of bitcoin from the Bitcoin Custodian even if the Sponsor
determined that such liquidation were appropriate or suitable. |
| ● | Certain privacy-preserving features have been or are expected to be introduced to digital asset networks,
such as the Bitcoin Network, and exchanges or businesses that facilitate transactions in bitcoin may be at an increased risk of having
banking services cut off if there is a concern that these features interfere with the performance of anti-money laundering duties and
economic sanctions checks. |
| ● | Users, developers and miners may otherwise switch to or adopt certain digital assets at the expense of
their engagement with other digital asset networks, which may negatively impact those networks, including the Bitcoin Network. |
The value of the Shares
is subject to a number of factors relating to the fundamental investment characteristics of bitcoin as a digital asset, including the
fact that digital assets are bearer instruments and loss, theft, or compromise of the associated private keys could result in permanent
loss of the asset, and the capabilities and development of blockchain technologies such as the Bitcoin Blockchain.
Digital assets such as bitcoin
were only introduced within the past 15 years, and the value of the Shares is subject to a number of factors over time relating to the
capabilities and development of blockchain technologies, such as the recentness of their development, their dependence on the internet
and other technologies, their dependence on the roleplayed by users, developers and miners and the potential for malicious activity.
Digital asset networks, including
the Bitcoin Network and associated Bitcoin Blockchain and the software used to operate them are in the early stages of development. Given
the recentness of the development of digital asset networks, digital assets may not function as intended and parties may be unwilling
to use digital assets, which would dampen the growth, if any, of digital asset networks. Because bitcoin is a digital asset, the value
of the Shares is subject to a number of factors relating to the fundamental investment characteristics of digital assets, including the
fact that digital assets are bearer instruments and loss, theft, compromise, or destruction of the associated private keys could result
in permanent loss of the asset.
For example, the realization
of one or more of the following risks could materially adversely affect the value of the Shares:
| ● | Digital assets, including bitcoin, are controllable only by the possessor of both the unique public key
and private key or keys relating to the Bitcoin Network address, or “wallet,” at which the digital asset is held. Private
keys must be safeguarded and kept private in order to prevent a third party from accessing the digital asset held in such wallet. The
loss, theft, compromise or destruction of a private key required to access a digital asset may be irreversible. If a private key is lost,
stolen, destroyed or otherwise compromised and no backup of the private key is accessible, the owner would be unable to access the digital
asset corresponding to that private key and the private key will not be capable of being restored by the digital asset network resulting
in the total loss of the value of the digital asset linked to the private key. |
| ● | Digital asset networks are dependent upon the internet. A disruption of the internet or a digital asset
network, such as the Bitcoin Network, would affect the ability to transfer digital assets, including bitcoin, and, consequently, would
impact their value. |
| ● | The acceptance of software patches or upgrades by a significant, but not overwhelming, percentage of the
users and miners in a digital asset network, such as the Bitcoin Network, could result in a “fork” in such network’s
blockchain, including the Bitcoin Blockchain, resulting in the operation of multiple separate networks. |
| ● | Governance of the Bitcoin Network is by voluntary consensus and open competition. As a result, there may
be a lack of consensus or clarity on the governance of the Bitcoin Network, which may stymie the Bitcoin Network’s utility and ability
to grow and face challenges. In particular, it may be difficult to find solutions or martial sufficient effort to overcome any future
problems on the Bitcoin Network, especially long-term problems. |
| ● | Over the past decade, bitcoin mining operations have evolved from individual users mining with computer
processors, graphics processing units and first-generation application specific integrated circuit machines to “professionalized”
mining operations using proprietary hardware or sophisticated machines. If the profit margins of bitcoin mining operations are not sufficiently
high, including due to an increase in electricity costs or a decline in the market price of bitcoin, or if bitcoin mining operations are
unable to arrange alternative sources of financing (e.g., if lenders refuse to make loans to such miners), bitcoin miners are more
likely to immediately sell more bitcoin than they otherwise would, resulting in an increase in liquid supply of bitcoin, which would generally
tend to reduce bitcoin’s market price. |
| ● | To the extent that any miners cease to record transactions that do not include the payment of a transaction
fee in solved blocks or do not record a transaction because the transaction fee is too low, such transactions will not be recorded on
the Bitcoin Blockchain until a block is mined by a miner who does not require the payment of transaction fees or is willing to accept
a lower fee. Any widespread delays in the recording of transactions could result in a loss of confidence in a digital asset network. |
| ● | Digital asset mining operations can consume significant amounts of electricity, which may have a negative
environmental impact and give rise to public opinion against allowing, or government regulations restricting, the use of electricity for
mining operations. Additionally, miners may be forced to cease operations during an electricity shortage or power outage, or if electricity
prices increase where the mining activities are performed. |
| ● | Many digital asset networks, including the Bitcoin Network, face significant scaling challenges and may
periodically be upgraded with various features designed to increase the speed and throughput of digital asset transactions. These attempts
to increase the volume of transactions may not be effective, and such upgrades may fail, resulting in potentially irreparable damage to
the Bitcoin Network and to the value of bitcoin. |
| ● | The open-source structure of many digital asset network protocols, such as the protocol for the Bitcoin
Network, means that developers and other contributors are generally not directly compensated for their contributions in maintaining and
developing such protocols. As a result, the developers and other contributors of a particular digital asset may lack a financial incentive
to maintain or develop the network, or may lack the resources to adequately address emerging issues. Alternatively, some developers may
be funded by companies whose interests are at odds with other participants in a particular digital asset network. A failure to properly
monitor and upgrade the protocol of the Bitcoin Network could damage that network. |
| ● | Previously, flaws in the source code for digital assets have been exposed and exploited, including flaws
that disabled some functionality for users, exposed users’ personal information and/or resulted in the theft of users’ digital
assets. The cryptography underlying bitcoin could prove to be flawed or ineffective, or developments in mathematics and/or technology,
including advances in digital computing, algebraic geometry and quantum computing, could result in such cryptography becoming ineffective.
In any of these circumstances, a malicious actor may be able to compromise the security of the Bitcoin Network or take the Fund’s
bitcoin, which would adversely affect the value of the Shares. Moreover, functionality of the Bitcoin Network may be negatively affected
such that it is no longer attractive to users, thereby dampening demand for bitcoin. Even if another digital asset other than bitcoin
were affected by similar circumstances, any reduction in confidence in the source code or cryptography underlying digital assets generally
could negatively affect the demand for digital assets and therefore adversely affect the value of the Shares. |
Moreover, because digital
assets, including bitcoin, have been in existence for a short period of time and are continuing to develop, there may be additional risks
in the future that are impossible to predict as of the date of this prospectus.
The open-source structure
of the Bitcoin Network protocol means that the core developers and other contributors are generally not directly compensated for their
contributions in maintaining and developing the Bitcoin Network protocol. A failure to properly monitor and upgrade the Bitcoin Network
protocol could damage the Bitcoin Network and adversely impact the Fund.
The Bitcoin Network operates
based on an open-source protocol maintained by the core developers and other contributors, largely on the GitHub resource section dedicated
to bitcoin development. As bitcoin is rewarded solely for mining activity and are not sold to raise capital for the Bitcoin Network, and
the Bitcoin Network protocol itself is made available for free rather than sold or made available subject to licensing or subscription
fees and its use does not generate revenues for its development team, the core developers are generally not compensated for maintaining
and updating the source code for the Bitcoin Network protocol. Consequently, there is a lack of financial incentive for developers to
maintain or develop the Bitcoin Network and the core developers may lack the resources to adequately address emerging issues with the
Bitcoin Network protocol. Although the Bitcoin Network is currently supported by the core developers, there can be no guarantee that such
support will continue or be sufficient in the future. In addition, a bad actor could also attempt to interfere with the operation of the
Bitcoin Network by attempting to exercise a malign influence over a core developer. To the extent that material issues arise with the
Bitcoin Network protocol and the core developers and open-source contributors are unable to address the issues adequately or in a timely
manner, investments in bitcoin, such as the Fund’s, may be adversely affected.
Digital asset networks
face significant scaling challenges and efforts to increase the volume and speed of transactions may not be successful.
Many digital asset networks,
including the Bitcoin Network, face significant scaling challenges due to the fact that public blockchains generally face a tradeoff between
security and scalability. One means through which public blockchains achieve security is decentralization, meaning that no intermediary
is responsible for securing and maintaining these systems. For example, a greater degree of decentralization generally means a given digital
asset network is less susceptible to manipulation or capture. A digital asset network may be limited in the number of transactions it
can process by the capabilities of each single fully participating node.
As corresponding increases
in throughput lag behind growth in the use of digital asset networks, average fees and settlement times may increase considerably. For
example, the Bitcoin Network has been, at times, at capacity, which has led to increased transaction fees. Increased fees and decreased
settlement speeds could preclude certain uses for bitcoin (e.g., micropayments), and could reduce demand for, and the price of,
bitcoin, which could adversely impact the value of the Shares. Since January 1, 2019, bitcoin transaction fees have increased from $0.18
per bitcoin transaction, on average, to a high of $60.95 per transaction, on average, on April 20, 2021. In May 2023, events related to
the adoption of ordinals, which are a means of inscribing digital content on the Bitcoin Blockchain, caused transaction fees to temporarily
spike above $30 per transaction. As of December 31, 2023, bitcoin transaction fees were $4.45 per transaction, on average, over a one-year
trailing basis.
There is no guarantee that
any of the mechanisms in place or being explored for increasing the scale of settlement of the Bitcoin Network transactions will be effective,
or how long these mechanisms will take to become effective, which could cause the Bitcoin Network to not adequately resolve scaling challenges
and adversely impact the adoption of bitcoin as a medium of exchange. Such impact may adversely impact the value of bitcoin and the value
of Shares.
The scheduled creation
of newly mined bitcoin and their subsequent sale may cause the price of bitcoin to decline, which could negatively affect the value of
the Fund’s Shares.
Newly created bitcoin (“newly
mined bitcoin”) are generated through a process referred to as “mining” which involves the collection of a reward of
new bitcoin. As of the date of this prospectus, the Bitcoin Network creates 6.25 bitcoin with each block added to the Blockchain; these
newly mined bitcoin are awarded to the bitcoin miner that has added the block to the Blockchain, which occurs on average approximately
every 10 minutes. When the recipient makes newly mined bitcoin available for sale, there can be downward pressure on the price of bitcoin
as the new supply is introduced into the market. Lower bitcoin prices may result in further tightening of profit margins for miners and
decreasing profitability, thereby potentially causing further selling pressure. Diminishing profit margins and increasing sales of newly
mined bitcoin could result in a reduction in the price of bitcoin, which could adversely impact an investment in the Shares.
In addition, bitcoin mining
is highly sensitive to energy prices and digital assets market prices. Bitcoin miners use specialized computers that consume significant
amounts of energy. As energy prices fluctuate, the marginal cost of bitcoin mining increases and decreases. Conversely, the price of bitcoin
and amount of computational power being expended by other bitcoin miners will impact the profitability and likelihood of solving a block
and receiving newly mined bitcoin. If the marginal cost of bitcoin mining exceeds the expected profit, miners may cease to expend energy
to mine bitcoin. If a material number of miners turn off their mining hardware, the speed of transaction processing on the Bitcoin Network
may experience a temporary slowdown and the overall security of the Bitcoin Network may be reduced. Bitcoin mining consumes large amounts
of electricity, and many bitcoin miners rely on fossil fuels to power their operations. Public perception of the impact of bitcoin mining
on climate change and/or country-specific or global climate change regulations that cap or ban energy usage may reduce demand for bitcoin
and increase the likelihood of regulation that limits bitcoin mining or restricts energy usage by bitcoin miners. Such events could have
an impact on the price of bitcoin and the performance of the Fund.
The prevailing level
of transaction fees may adversely affect the usage of the Bitcoin Network.
In addition to the reward
of new bitcoin, Bitcoin miners collect fees for each transaction they confirm. Miners validate unconfirmed transactions by adding the
previously unconfirmed transactions to new blocks in the Blockchain. Miners are not forced to confirm any specific transaction, but they
are economically incentivized to confirm valid transactions as a means of collecting fees. Miners have historically accepted relatively
low transaction confirmation fees, because miners have a very low marginal cost of validating unconfirmed transactions. In addition, most
iterations of mining software will prioritize transactions recorded based on (i) thresholds selected by the user, (ii) the transaction
fee paid with the transaction, (iii) the value attached to the transaction and (iv) the time the transaction was received by the mining
software.
If miners collude in an
anticompetitive manner to not record transactions that pay low transaction fees, then bitcoin users would be required to either wait
for their transaction to be included in a block by a miner not requiring such transaction fees or require users pay higher fees to
ensure their transactions are recorded promptly, thus reducing the attractiveness of the Bitcoin Network. Bitcoin mining occurs
globally, and it may be difficult for authorities to apply antitrust regulations across multiple jurisdictions. Any collusion among
miners may adversely impact the value of bitcoin and the value of Shares, as well as the ability of the Fund to operate.
If the number of outstanding
transactions yet to be recorded in the Blockchain (commonly referred to as “transactions in the mempool”) are significantly
above the capacity which can be recorded in any single block, miners are likely to prioritize recording transactions that pay significant
transaction fees. This would result in transactions with low or no fees remaining in the mempool for extended periods. Such a scenario
would further incentivize higher fees paid to ensure their transactions are recorded promptly, thus reducing the attractiveness of the
Bitcoin Network. An extended period of large numbers of transactions in the mempool could result from high levels of use of the Bitcoin
Network or from a malicious spam attack intending to increase the transactions in the mempool. Any extended period with large numbers
of transactions in the mempool may adversely impact the value of the Shares or the ability of the Fund to operate.
Additionally, the reward for
successful mining transactions (also known as the “block reward”) will decrease over time. In May 2020, the block reward was
reduced from 12.5 to 6.25 bitcoin, and will further be reduced by half approximately every four years (e.g., to 3.125 bitcoin in 2024).
As the block reward continues to decrease over time, the mining incentive structure may transition to a higher reliance on transaction
confirmation fees in order to incentivize miners to continue to dedicate processing power to the blockchain. If transaction confirmation
fees become too high, the marketplace may be reluctant to use bitcoin. Conversely, if the combination of the block reward and transaction
fees are too low, miners may not be incentivized to expend processing power to solve blocks and confirmations of transactions on the Blockchain
could be temporarily slowed. A reduction in the processing power expended by miners on the Bitcoin Network could increase the likelihood
of a malicious actor or botnet obtaining control. Any reduction in infrastructure security may reduce confidence in the Bitcoin Network
or expose the Bitcoin Network to a malicious actor or botnet obtaining a majority of processing power on the Bitcoin Network, reducing
the confidence in and security of the Blockchain. Decreased demand for bitcoin or reduced security on the Bitcoin Network may adversely
impact the Shares.
A temporary or permanent
“fork” could adversely affect an investment in the Fund. Additionally, the Fund may not receive the benefit of any forks or
“airdrops”.
The Bitcoin Network operates
using open-source protocols, meaning that any user can download the software, modify it and then propose that the users and miners of
bitcoin adopt the modification. When a modification is introduced and a substantial majority of users and miners consent to the modification,
the change is implemented and the network remains uninterrupted. However, if less than a substantial majority of users and miners consent
to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would
be what is known as a “hard fork” of the Bitcoin Network, with one group running the pre-modified software and the other running
the modified software. The effect of such a fork would be the existence of two versions of bitcoin running in parallel on separate networks
using separate blockchain ledgers, yet lacking interchangeability. For example, in August 2017, Bitcoin “forked” into Bitcoin
and a new digital asset, Bitcoin Cash, as a result of a several-year dispute over how to increase the rate of transactions that the Bitcoin
Network can process.
Forks may also occur as a
network community’s response to a significant security breach. For example, in July 2016, Ethereum “forked” into Ethereum
and a new digital asset, Ethereum Classic, as a result of the Ethereum network community’s response to a significant security breach
in which an anonymous hacker exploited a smart contract running on the Ethereum network to syphon approximately $60 million of ETH held
by The DAO, a distributed autonomous organization, into a segregated account. In response to the hack, most participants in the Ethereum
community elected to adopt a “fork” that effectively reversed the hack. However, a minority of users continued to develop
the original blockchain, now referred to as “Ethereum Classic” with the digital asset on that blockchain now referred to as
Ethereum Classic, or ETC. ETC now trades on several digital asset exchanges. A fork may also occur as a result of an unintentional or
unanticipated software flaw in the various versions of otherwise compatible software that users run. Such a fork could lead to users and
miners abandoning the digital asset with the flawed software. It is possible, however, that a substantial number of users and miners could
adopt an incompatible version of the digital asset while resisting community-led efforts to merge the two chains. This could result in
a permanent fork, as in the case of Ethereum and Ethereum Classic.
In addition, many developers
have previously initiated hard forks in the Blockchain to launch new digital assets, such as Bitcoin Gold and Bitcoin Diamond. To the
extent such digital assets compete with bitcoin, such competition could impact demand for bitcoin and could adversely impact the value
of Shares.
Furthermore, a hard fork can
lead to new security concerns. For example, when the Ethereum and Ethereum Classic networks, two other digital asset networks, split in
July 2016, replay attacks, in which transactions from one network were rebroadcast to nefarious effect on the other network, plagued Ethereum
exchanges through at least October 2016. An Ethereum exchange announced in July 2016 that it had lost 40,000 Ethereum Classic, worth about
$100,000 at that time, as a result of replay attacks. Similar replay attack concerns occurred in connection with the Bitcoin Cash and
Bitcoin SV networks split in November 2018. Another possible result of a hard fork is an inherent decrease in the level of security due
to significant amounts of mining power remaining on one network or migrating instead to the new forked network. After a hard fork, it
may become easier for an individual miner or mining pool’s hashing power to exceed 50% of the processing power of a digital asset
network that retained or attracted less mining power, thereby making digital assets that rely on proof-of-work more susceptible to attack.
A hard fork may adversely
affect the price of bitcoin at the time of announcement or adoption. For example, the announcement of a hard fork could lead to increased
demand for the pre-fork digital asset, in anticipation that ownership of the pre-fork digital asset would entitle holders to a new digital
asset following the fork. The increased demand for the pre-fork digital asset may cause the price of the digital asset to rise. After
the hard fork, it is possible the aggregate price of the two versions of the digital asset running in parallel would be less than the
price of the digital asset immediately prior to the fork. Furthermore, while the Sponsor will, as permitted by the terms of the Trust
Agreement, determine which network is generally accepted as the Bitcoin Network and should therefore be considered the appropriate network
for the Fund’s purposes, there is no guarantee that the Sponsor will choose the network and the associated digital asset that is
ultimately the most valuable fork. Either of these events could therefore adversely impact the value of Shares.
A future fork in the Bitcoin
Network could adversely affect the portion of the Shares’ value that is tied to bitcoin or the ability of the Fund to operate.
As another example of the
effects of hard forks on digital assets, on September 15, 2022, the Ethereum Network completed its Merge, moving from a proof-of-work
model to a proof-of-stake model. Ethereum proof-of-work miners who disagreed with the new consensus mechanism forked the network which
resulted in the Ethereum proof-of-work network. Ethereum proof-of-work network was driven by a small but vocal group of miners who wished
to hold onto revenue as Ethereum switched to proof-of-stake. The vast majority of token holder votes preferred the new proof-of- stake
consensus method. There was no material impact on the Ethereum network as a result of the fork. All ether holders were airdropped Ethereum
proof-of-work network tokens as a result of the hard fork. However, not all liquidity providers were able to trade the new token and the
Ethereum proof-of-work network token almost immediately lost most of its value.
In addition to forks, a digital
asset may become subject to a similar occurrence known as an “airdrop.” In an airdrop, the promoters of a new digital asset
announce to holders of another digital asset that such holders will be entitled to claim a certain amount of the new digital asset for
free, based on the fact that they hold such other digital asset. For example, in March 2017 the promoters of Stellar Lumens announced
that anyone that owned bitcoin as of June 26, 2017 could claim, until August 27, 2017, a certain amount of Stellar Lumens. Airdrops could
create operational security, legal or regulatory, or other risks for the Fund, the Sponsor, the Bitcoin Custodian, Authorized Participants
or other entities.
An “Incidental Right”
is the right to receive any benefit of a fork, airdrop or similar event, and any such virtual currency (other than bitcoin) acquired through
an Incidental Right is an “IR Virtual Currency.” With respect to a fork, airdrop or similar event, the Sponsor will cause
the Fund to irrevocably abandon the Incidental Rights and any IR Virtual Currency associated with such event. As such, Shareholders will
not receive the benefits of any Incidental Rights and any IR Virtual Currency. In the event the Fund seeks to change its policy with respect
to the Incidental Rights or IR Virtual Currency, an application would need to be filed with the SEC by the Exchange seeking approval to
amend its listing rules to permit the Fund to sell Incidental Rights or IR Virtual Currency and distribute the cash proceeds (net of expenses
and applicable withholding taxes) to DTC or distribute the Incidental Rights or IR Virtual Currency in-kind to DTC. However, there can
be no assurance as to whether or when the Sponsor would make such a decision, or when the Exchange would seek or obtain this approval,
if at all. Even if such regulatory approval is sought and obtained, Shareholders may not receive the benefits of a fork, the Trust may
not choose, or be able, to participate in an airdrop, and the timing of receiving any benefits from a fork, airdrop or similar event is
uncertain.
Any inability to recognize
the economic ability of a hard fork or airdrop could adversely affect the value of the Shares. Investors who prefer to have a greater
degree of control over events such as forks, airdrops, and similar events, and any assets made available in connection with each, should
consider investing in bitcoin directly rather than purchasing Shares.
A hard fork could change
the source code to the Bitcoin Network, including the 21 million bitcoin supply cap.
In principle a hard fork could
change the source code for the Bitcoin Network, including the source code which limits the supply of bitcoin to 21 million. Although many
observers believe this is unlikely at present, there is no guarantee that the current 21 million supply cap for outstanding bitcoin, which
is estimated to be reached by approximately the year 2140, will not be changed. If a hard fork changing the 21 million supply cap is widely
adopted, the limit on the supply of bitcoin could be lifted, which could have an adverse impact on the value of bitcoin and the portion
of the Shares’ value that is tied to bitcoin.
In 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 Fund’s purposes, and in doing so may adversely affect the value of
Shares.
In the event of a hard fork
of the Bitcoin Network, the Sponsor will, as permitted by the terms of the Trust Agreement, use its sole discretion to determine, in good
faith, which peer-to-peer network, among a group of incompatible forks of the Bitcoin Network, is generally accepted as the Bitcoin Network
and should therefore be considered the appropriate network for the Fund’s purposes. The Sponsor will base its determination on whatever
factors it deems relevant, including but not limited to, the Sponsor’s beliefs regarding expectations of the core developers of
bitcoin, users, services, businesses, miners and other constituencies, as well as the actual continued acceptance of, mining power on,
and community engagement with, the Bitcoin Network, or whatever other factors it deems relevant. There is no guarantee that the Sponsor
will choose the digital asset that is ultimately the most valuable fork, and the Sponsor’s decision may adversely affect the portion
of the Shares’ value that is tied to bitcoin as a result. The Sponsor may also disagree with Shareholders, the Bitcoin Custodian,
other service providers, Vinter, cryptocurrency exchanges, or other market participants on what is generally accepted as bitcoin and should
therefore be considered “bitcoin” for the Fund’s purposes, which may also adversely affect the value of Shares.
If a malicious actor
or botnet obtains control of more than 50% of the processing power on the Bitcoin Network, or otherwise obtains control over the Bitcoin
Network through its influence over core developers or otherwise, such actor or botnet could manipulate how data is recorded the Blockchain
to adversely affect the value of Shares and/or the ability of the Fund to operate.
If a malicious actor or botnet
(a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains control
of more than 50% of the processing power dedicated to mining on the Bitcoin Network, it may be able to alter the Blockchain on which transactions
in bitcoin rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The
malicious actor or botnet could also control, exclude or modify the ordering of transactions. Although the malicious actor or botnet would
not be able to generate new bitcoin or transactions using such control, it could “double-spend” its own tokens (i.e.,
spend the same tokens in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it
maintained control. To the extent that such a malicious actor or botnet did not yield its control of the processing power on the Bitcoin
Network or the bitcoin community did not reject the fraudulent blocks as malicious, reversing any changes made to the Blockchain may not
be possible. Further, a malicious actor or botnet could create a flood of transactions in order to slow down the Bitcoin Network or cause
an increase in the transaction fees paid by users to confirm transactions.
Although there are no known
reports of malicious parties taking control of the Bitcoin Network, it is believed that certain mining pools may have exceeded the 50%
threshold on the Bitcoin Network on a temporary basis. The possible crossing of the 50% threshold indicates a greater risk that a single
mining pool could exert authority over the validation of bitcoin transactions, and this risk is heightened if over 50% of the processing
power on the network falls within the jurisdiction of a single governmental authority. For example, it is believed that more than 50%
of the processing power on the Bitcoin Network may be located in China. Because the Chinese government has subjected digital assets to
heightened levels of scrutiny recently, reportedly forcing several digital asset exchanges to shut down, there is a risk that the Chinese
government could also achieve control over more than 50% of the processing power on the Bitcoin Network. If network participants, including
the core developers and the administrators of mining pools, do not act to ensure greater decentralization of bitcoin mining processing
power, the feasibility of a malicious actor obtaining control of the processing power on the Bitcoin Network will increase, which may
adversely affect the value of Shares. Additionally, if miners experience financial or other difficulties on a large scale and are unable
to participate in mining activities, the risks of the Bitcoin Network becoming more centralized, and therefore more susceptible to malicious
actor control, could increase.
A malicious actor may also
obtain control over the Bitcoin Network through its influence over core developers by gaining direct control over a core developer or
an otherwise influential programmer. To the extent that the bitcoin ecosystem does not grow, the possibility that a malicious actor may
be able to obtain control of the processing power or development control on the Bitcoin Network will remain heightened. Additionally,
to the extent that users and miners accept amendments to the source code proposed by the controlled core developer, other core developers
do not counter such amendments, and such amendments enable the malicious exploitation of the Bitcoin Network, the risk that a malicious
actor may be able to obtain control of the Bitcoin Network in this manner exists.
The Fund is subject
to risks as a result of investing approximately 80% of its assets in a single asset: bitcoin. Any decreases in the value of bitcoin or
disruption of the bitcoin trading markets, generally, will adversely impact the value of Shares. The Fund may be more volatile than an
investment in a more broadly diversified portfolio.
The Fund’s investment
strategy includes the Fund concentrating 80% of its assets in bitcoin. Accordingly, the Fund’s holdings are not diversified. The
Fund’s value is therefore more susceptible to adverse impacts to bitcoin than other, more diversified funds. Fluctuations in the
price of bitcoin are expected to directly impact the value of Shares. The Fund’s NAV may be more volatile than an investment vehicle
with a more broadly diversified portfolio and may experience significant fluctuations over either a short or long period of time.
80% of the Fund’s
investments are in bitcoin, and the value of Shares will be significantly impacted by the value of bitcoin. Bitcoin’s value may
be highly volatile and subject to fluctuations due to a number of factors.
80% of the value of the Fund
is invested in bitcoin, and the value of Shares will be significantly impacted by the value of bitcoin. Fluctuations in the value of bitcoin
could adversely, and significantly, affect the value of Shares. The market price of bitcoin may be highly volatile, and subject to a number
of factors, including:
| ● | an increase in the global bitcoin supply or a decrease in global bitcoin demand; |
| ● | market conditions of, and overall sentiment towards, the digital assets and blockchain technology industry; |
| ● | trading activity on digital asset exchanges, which, in many cases, are largely unregulated or may be subject
to manipulation; |
| ● | the adoption of bitcoin as a medium of exchange, store-of-value or other consumptive asset and the maintenance
and development of the open-source software protocol of the Bitcoin Network, and their ability to meet user demands; |
| ● | forks in the Bitcoin Network; |
| ● | investors’ expectations with respect to interest rates, the rates of inflation of fiat currencies
or bitcoin, and digital asset exchange rates; |
| ● | consumer preferences and perceptions of bitcoin specifically and digital assets generally; |
| ● | negative events, publicity, and social media coverage relating to the digital assets and blockchain technology
industry; |
| ● | fiat currency withdrawal and deposit policies on digital asset exchanges; |
| ● | the liquidity of digital asset markets and any increase or decrease in trading volume or market making
on digital asset markets; |
| ● | business failures, bankruptcies, hacking, fraud, crime, government investigations, or other negative developments
affecting digital asset businesses, including digital asset exchanges, or banks or other financial institutions and service providers
which provide services to the digital assets industry; |
| ● | the use of leverage in digital asset markets, including the unwinding of positions, “margin calls,”
collateral liquidations and similar events; |
| ● | investment and trading activities of large or active consumer and institutional users, speculators, miners,
and investors in bitcoin; |
| ● | an active derivatives market for bitcoin or for digital assets generally; |
| ● | monetary policies of governments, legislation or regulation, trade restrictions, currency devaluations
and revaluations and regulatory measures or enforcement actions, if any, that restrict the use of bitcoin as a form of payment or the
purchase of bitcoin on the digital asset markets; |
| ● | global or regional political, economic or financial conditions, events and situations, such as a novel
coronavirus outbreak; |
| ● | fees associated with processing a bitcoin transaction and the speed at which bitcoin transactions are
settled; |
| ● | the maintenance, troubleshooting, and development of the Bitcoin Network including by miners and developers
worldwide; |
| ● | the ability for the Bitcoin Network to attract and retain miners to secure and confirm transactions accurately
and efficiently; |
| ● | ongoing technological viability and security of the Bitcoin Network and bitcoin transactions, including
vulnerabilities against hacks and scalability; |
| ● | financial strength of market participants; |
| ● | the availability and cost of funding and capital; |
| ● | the liquidity and credit risk of digital asset platforms; |
| ● | interruptions in service from or closures or failures of major digital asset exchanges or their banking
partners, or outages or system failures affecting the Bitcoin Network; |
| ● | decreased confidence in digital assets and digital assets exchanges; |
| ● | poor risk management or fraud by entities in the digital assets ecosystem; |
| ● | increased competition from other forms of digital assets or payment services; and |
| ● | the Fund’s own acquisitions or dispositions of bitcoin, since there is no limit on the number of
bitcoin that the Fund may acquire. |
There is no assurance that
bitcoin will maintain its value in the long, intermediate, short, or any other term. In the event that the price of bitcoin declines,
the Shares’ value will also decline. The value of a bitcoin as represented by the Bitcoin Price may also be subject to momentum
pricing due to speculation regarding future appreciation in value, leading to greater volatility that could adversely affect the value
of the Shares. Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing
public, accounts for future appreciation in value, if any. The Sponsor believes that momentum pricing of bitcoin has resulted, and may
continue to result, in speculation regarding future appreciation in the value of bitcoin, inflating and making the Index more volatile.
As a result, bitcoin may be more likely to fluctuate in value due to changing investor confidence, which could adversely affect the value
of Shares.
Bitcoin ownership is
concentrated in a small number of holders referred to as “Whales.”
A significant portion of bitcoin
is held by a small number of holders who have the ability to affect the price of bitcoin and who are sometimes referred to as “whales.”
Because bitcoin is lightly regulated, bitcoin whales have the ability, alone or in coordination, to manipulate the price of bitcoin by
restricting or expanding the supply of bitcoin. Activities of bitcoin whales that reduce user confidence in bitcoin, the Bitcoin Network
or the fairness of bitcoin trading venues, or that affect the price of bitcoin, could have a negative impact on the portion of the Shares’
value that is tied to bitcoin.
Due to the unregulated
nature and lack of transparency surrounding the operations of digital asset exchanges, they may experience fraud, security failures or
operational problems, which may adversely affect the value of bitcoin and, consequently, the value of Shares.
Digital asset exchanges are
relatively new and, in some cases, unregulated. Furthermore, while many prominent digital asset exchanges provide the public with significant
information regarding their ownership structure, management teams, corporate practices and regulatory compliance, many digital asset exchanges
do not provide this information. Digital asset exchanges do not appear to be subject to, or may not comply with, regulation in a similar
manner as other regulated trading platforms, such as national securities exchanges or designated contract markets. As a result, the marketplace
may lose confidence in digital asset exchanges, including prominent exchanges that handle a significant volume of bitcoin trading.
Many digital asset exchanges
are unlicensed, unregulated, operate without extensive supervision by governmental authorities, and do not provide the public with significant
information regarding their ownership structure, management team, corporate practices, cybersecurity, and regulatory compliance. In particular,
those located outside the United States may be subject to significantly less stringent regulatory and compliance requirements in their
local jurisdictions. As a result, trading activity on or reported by these digital asset exchanges is generally significantly less regulated
than trading in regulated U.S. securities and commodities markets, and may reflect behavior that would be prohibited in regulated U.S.
trading venues. For example, in 2019 there were reports claiming that 80.95% of bitcoin trading volume on digital asset exchanges was
false or noneconomic in nature, with specific focus on unregulated exchanges located outside of the United States engaging in a variety
of manipulative or fraudulent activities. Nonetheless, any actual or perceived false trading in the digital asset exchange market, and
any other fraudulent or manipulative acts and practices, could adversely affect the value of bitcoin and/or negatively affect the market
perception of bitcoin.
The bitcoin market globally
and in the United States is not subject to the regulatory guardrails that exist in the regulated securities markets nor the safeguards
put in place by exchanges for more traditional assets to enhance the stability of trading on exchanges and prevent “flash crashes.”
Tools to detect and deter fraudulent or manipulative trading activities such as market manipulation, front-running of trades, and wash-trading,
may not be available to or employed by digital asset exchanges, or may not exist at all. The effect of these could inflate volumes in
the digital asset markets and/or cause distortions in price, which could adversely affect the Fund.
In addition, over the past
several years, some digital asset exchanges have been closed due to fraud and manipulative activity, business failure or security breaches.
In many of these instances, the customers of such digital asset exchanges were not compensated or made whole for the partial or complete
losses of their account balances in such digital asset exchanges. While, generally speaking, smaller digital asset exchanges are less
likely to have the infrastructure and capitalization that make larger digital asset exchanges more stable, larger digital asset exchanges
are more likely to be appealing targets for hackers and malware and may be more likely to be targets of regulatory enforcement action.
For example, in November 2022, FTX Trading Ltd. (“FTX”), one of the largest digital asset exchanges by volume at the time,
halted customer withdrawals amid rumors of the company’s liquidity issues and likely insolvency, which were subsequently corroborated
by its CEO. Shortly thereafter, FTX’s CEO resigned and FTX and many of its affiliates filed for bankruptcy in the United States,
while other affiliates have entered insolvency, liquidation, or similar proceedings around the globe, following which the U.S. Department
of Justice brought criminal fraud and other charges, and the SEC and CFTC brought civil securities and commodities fraud charges, against
certain of FTX’s and its affiliates’ senior executives, including its former CEO. Around the same time, there were reports
that approximately $300-600 million of digital assets were removed from FTX and the full facts remain unknown, including whether such
removal was the result of a hack, theft, insider activity, or other improper behavior.
Negative perception, a lack
of stability in the digital asset markets and the closure or temporary shutdown of digital asset exchanges due to fraud, failure or security
breaches may reduce confidence in the Bitcoin Network and result in greater volatility or decreases in the prices of bitcoin. Furthermore,
the closure or temporary shutdown of one of the digital asset exchanges used in calculating the value of bitcoin by the Index may result
in a loss of confidence in the Fund’s ability to determine its NAV on a daily basis. The potential consequences of a digital asset
exchange’s failure could adversely affect the value of the Shares.
The 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 with respect to bitcoin may result in greater volatility and adversely affect the value of Shares.
Momentum pricing typically
is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future
appreciation in value. The Sponsor believes that momentum pricing of bitcoin has resulted, and may continue to result, in speculation
regarding future appreciation in the value of bitcoin, inflating and making more volatile the price of bitcoin. As a result, bitcoin may
be more likely to fluctuate in value due to changing investor confidence in future appreciation (or depreciation) in the price of bitcoin,
which could adversely affect the portion of the Shares’ value that is tied to bitcoin.
The Shares may trade
at a discount or premium in the trading price relative to the Fund’s NAV on a per Share basis as a result of non-concurrent trading
hours between the Exchange and the Bitcoin Platform Markets.
The value of a Share may be
influenced by non-concurrent trading hours between the Exchange and various Bitcoin Platforms, including those that represent components
of the Index. While the Exchange is open for trading in the Shares for a limited period each day, the Bitcoin Platform Market is a 24-hour
marketplace; however, trading volume and liquidity on the Bitcoin Platform Market is not consistent throughout the day and Bitcoin Platforms,
including the larger-volume markets, have been known to shut down temporarily or permanently due to security concerns, directed denial
of service attacks and distributed denial of service attacks (coordinated hacking attempts to disrupt websites, web servers or computer
networks in which an attacker bombards an online target with a large quantity of external requests, thus precluding the target from processing
requests from genuine users) and other reasons. As a result, during periods when the Exchange is open but large Bitcoin Platforms (or
a substantial number of smaller Bitcoin Platforms) are either lightly traded or are closed, trading spreads and the resulting premium
or discount on the Shares may widen and, therefore, increase the difference between the price of the Shares and the Fund’s Holdings
per Share. Premiums or discounts may have an adverse effect on an investment in the Shares if a Shareholder sells or acquires its Shares
during a period of discount or premium, respectively.
If 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.
The value of a Share may be
influenced by non-concurrent trading hours between the Exchange and various Bitcoin Platforms, including those that represent components
of the Index. While the Exchange is open for trading in the Shares for a limited period each day, the Bitcoin Platform Market is a 24-hour
marketplace. During periods when the Exchange is closed but Bitcoin Platforms are open, significant changes in the price of bitcoin on
the Bitcoin Platform Market could result in a difference in performance between the value of bitcoin as measured by the Index and the
most recent Holdings per Share or closing trading price. To the extent that the price of bitcoin on the Bitcoin Platform Market, and the
value of bitcoin as measured in part by the Index, moves significantly in a negative direction after the close of the Exchange, the trading
price of the Shares may “gap” down to the full extent of such negative price shift when the Exchange reopens. To the extent
that the price of bitcoin on the Bitcoin Platform Market drops significantly during hours the Exchange is closed, investors may not be
able to sell their Shares until after the “gap” down has been fully realized, resulting in an inability to mitigate losses
in a rapidly negative market.
A 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.
Investors may purchase Shares
to hedge existing bitcoin or other digital currencies, commodity or currency exposure or to speculate on the price of bitcoin. Speculation
on the price of bitcoin may involve long and short exposures. To the extent that aggregate short exposure exceeds the number of Shares
available for purchase (for example, in the event that large redemption requests by Authorized Purchasers dramatically affect Share liquidity),
investors with short exposure may have to pay a premium to repurchase Shares for delivery to Share lenders. Those repurchases may, in
turn, dramatically increase the price of the Shares until additional Shares are created through the creation process. This is often referred
to as a “short squeeze.” A short squeeze could lead to volatile price movements in the portion of the Shares’ value
that is tied to bitcoin that are not directly correlated to the price of bitcoin.
Competition from the
emergence or growth of other digital assets or methods of investing in bitcoin could have a negative impact on the price of bitcoin and
adversely affect the value of Shares.
Bitcoin was the first digital
asset to gain global adoption and critical mass, and as a result, it has a “first to market” advantage over other digital
assets. As of December 31, 2023, bitcoin was the largest digital asset by market capitalization and had the largest combined mining power.
Despite this first to market advantage, as of December 31, 2023, there were over 10,000 alternative digital assets tracked by CoinMarketCap.com,
having a total market capitalization of approximately $1.65 trillion (including the approximately $833 billion market capitalization of
bitcoin), as calculated using market prices and total available supply of each digital asset. In addition, many consortiums and financial
institutions are also researching and investing resources into private or permissioned smart contract platforms rather than open platforms
like the Bitcoin Network. Competition from the emergence or growth of alternative digital assets and smart contracts platforms, such as
Ethereum, Solana, Avalanche, Polkadot, or Cardano, could have a negative impact on the demand for, and price of, bitcoin and thereby adversely
affect the value of the Shares.
In addition, some digital
asset networks, including the Bitcoin Network, may be the target of ill will from users of other digital asset networks. For example,
Litecoin is the result of a hard fork of bitcoin. Some users of the Bitcoin Network may harbor ill will toward the Litecoin network, and
vice versa. These users may attempt to negatively impact the use or adoption of the Bitcoin Network.
Investors may invest in bitcoin
through means other than the Shares, including through direct investments in bitcoin and other potential financial vehicles, possibly
including securities backed by or linked to bitcoin and digital asset financial vehicles similar to the Fund. In addition, to the extent
digital asset financial vehicles other than the Fund tracking the price of bitcoin are formed and represent a significant proportion of
the demand for bitcoin, large purchases or redemptions of the securities of these digital asset financial vehicles, or private funds holding
bitcoin, could negatively affect the Index and the portion of the Shares’ value that is tied to bitcoin.
The 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 Bitcoin Price and adversely affect the value of Shares.
As an alternative to fiat
currencies that are backed by central governments, digital assets such as bitcoin, which are relatively new, are subject to supply and
demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear
how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale
acquisitions or sales of bitcoin either globally or locally. Large-scale sales of bitcoin would result in a reduction in the Bitcoin Price
and could adversely affect the portion of the Shares’ value that is tied to bitcoin.
Demand for bitcoin is
driven, in part, by its status as the most prominent and secure digital asset. It is possible that a digital asset other than bitcoin
could have features that make it more desirable to a material portion of the digital asset user base, resulting in a reduction in demand
for bitcoin, which could have a negative impact on the price of bitcoin and adversely affect the value of Shares.
Bitcoin was the first digital
asset to gain global adoption and critical mass, and as a result, it has a “first to market” advantage over other digital
assets. As of December 31, 2022, bitcoin was the largest digital asset by market capitalization and had the largest user base and largest
combined mining power. Despite this first to market advantage, as of December 31, 2022, there were over 10,000 alternative digital assets
tracked by CoinMarketCap.com, having a total market capitalization of approximately $870 billion (including the approximately $320 billion
market capitalization of bitcoin), as calculated using market prices and total available supply of each digital asset. In addition, many
consortiums and financial institutions are also researching and investing resources into private or permissioned smart contract platforms
rather than open platforms like the Bitcoin Network. Competition from the emergence or growth of alternative digital assets and smart
contracts platforms, such as Ethereum, Solana, Avalanche, Polkadot or Cardano, could have a negative impact on the demand for, and price
of, bitcoin and thereby adversely affect the value of the Shares.
Investors may invest in bitcoin
through means other than the Shares, including through direct investments in bitcoin and other potential financial vehicles, possibly
including securities backed by or linked to bitcoin and digital asset financial vehicles similar to the Fund. In addition, to the extent
digital asset financial vehicles other than the Fund tracking the price of bitcoin are formed and represent a significant proportion of
the demand for bitcoin, large purchases or redemptions of the securities of these digital asset financial vehicles, or private funds holding
bitcoin, could negatively affect the Index and the portion of the Shares’ value that is tied to bitcoin.
Risks Related to the Custody of Bitcoin
Failure to safeguard
and manage our digital assets could adversely impact the Fund’s business, operating results, and financial condition.
The Fund’s success and
the success of its offerings requires significant public confidence in the Fund’s and its partners’ abilities to properly
manage customers’ balances and handle large and growing transaction volumes and amounts of customer assets. In addition, the Fund
is dependent on its partners’ operations, liquidity, and financial condition for the proper maintenance, use, and safekeeping of
these customer assets. Any failure by the Fund or its partners to maintain the necessary controls or to manage customer digital assets
and funds appropriately and in compliance with applicable regulatory requirements could result in reputational harm, significant financial
losses, lead customers to discontinue or reduce their use of the Fund’s and its partners’ products, and result in significant
penalties and fines and additional restrictions, which could adversely impact the Fund’s business, operating results, and financial
condition.
The Bitcoin Custodian is responsible
for the proper deposit, transfer, and custody of digital assets in multiple jurisdictions. The Bitcoin Custodian is required to safeguard
customers’ assets using bank-level security standards. The Fund’s security technology is designed to prevent, detect, and
mitigate inappropriate access to its systems, by internal or external threats. The Fund believes the Bitcoin Custodian has developed and
maintained administrative, technical, and physical safeguards designed to comply with applicable legal requirements and industry standards.
However, it is nevertheless possible that hackers, employees or service providers acting contrary to the Bitcoin Custodian’s policies,
or others could circumvent these safeguards to improperly access the Fund’s systems or documents, or the systems or documents of
its business partners, agents, or service providers, and improperly access, obtain, misuse digital assets and funds. The methods used
to obtain unauthorized access, disable, or degrade service or sabotage systems are also constantly changing and evolving and may be difficult
to anticipate or detect for long periods of time. Any security incident resulting in a compromise of customer assets could result in substantial
costs to the Fund and require the Fund to notify impacted individuals, and in some cases regulators, of a possible or actual incident,
expose the Fund to regulatory enforcement actions, including substantial fines, limit the Fund’s ability to provide services, subject
the Fund to litigation, significant financial losses, damage the Fund’s reputation, and adversely affect the Fund’s business,
operating results, financial condition, and cash flows.
The loss or destruction
of a private key required to access bitcoin may be irreversible. The Bitcoin Custodian’s loss of access to a private key associated
with the Fund’s bitcoin could adversely affect an investment in the Shares.
Transfers of bitcoin among
users are accomplished via bitcoin transactions (i.e., sending bitcoin from one user to another). The creation of a bitcoin transaction
requires the use of a unique numerical code known as a “private key.” In the absence of the correct private key corresponding
to a holder’s particular bitcoin, the bitcoin is inaccessible. The custody of the Fund’s bitcoin is collectively handled by
the Bitcoin Custodian. If the internal procedures and controls of the Bitcoin Custodian are inadequate to safeguard the Fund’s bitcoin
holdings, and the Fund’s private keys are lost, destroyed or otherwise compromised and no backup of the private keys is accessible,
the Fund will be unable to access its bitcoin, which could adversely affect an investment in the Shares. In addition, if the Fund’s
private keys are misappropriated and the Fund’s bitcoin holdings are stolen, the Fund could lose some or all of its bitcoin holdings,
which could adversely impact the Fund.
Security threats to
the Fund’s account at the Bitcoin Custodian could result in the halting of Fund operations and a loss of Fund assets
or damage to the reputation of the Fund, each of which could result in a reduction in the value of the Shares.
Security breaches, computer
malware and computer hacking attacks have been a prevalent concern in relation to digital assets. The Sponsor believes that the Fund’s
bitcoin held in the Fund’s account at the Bitcoin Custodian will be an appealing target to hackers or malware distributors seeking
to destroy, damage or steal the Fund’s bitcoin and will only become more appealing as the Fund’s assets grow. To the extent
that the Fund, the Sponsor or the Bitcoin Custodian is unable to identify and mitigate or stop new security threats or otherwise adapt
to technological changes in the digital asset industry, the Fund’s bitcoin may be subject to theft, loss, destruction or other attack.
The Sponsor believes that
the security procedures in place for the Fund, including but not limited to, offline storage, or cold storage, multiple encrypted private
key “shards,” and other measures, are reasonably designed to safeguard the Fund’s bitcoin. Nevertheless, the security
procedures cannot guarantee the prevention of any loss due to a security breach, software defect or act of God that may be borne by the
Fund and the security procedures may not protect against all errors, software flaws or other vulnerabilities in the Fund’s technical
infrastructure, which could result in theft, loss or damage of its assets. The Sponsor does not control the Bitcoin Custodian’s
operations or their implementation of such security procedures and there can be no assurance that such security procedures will actually
work as designed or prove to be successful in safeguarding the Fund’s assets against all possible sources of theft, loss or damage.
Assets not held in cold storage, such as assets held in a trading account, may be more vulnerable to security breach, hacking or loss
than assets held in cold storage.
The security procedures and
operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of the Sponsor,
the Bitcoin Custodian, or otherwise, and, as a result, an unauthorized party may obtain access to the Fund’s account at the Bitcoin
Custodian, the relevant private keys (and therefore bitcoin) or other data or property of the Fund. Additionally, outside parties may
attempt to fraudulently induce employees of the Sponsor or the Bitcoin Custodian to disclose sensitive information in order to gain access
to the Fund’s infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems
change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against
a target, the Sponsor and the Bitcoin Custodian may be unable to anticipate these techniques or implement adequate preventative measures.
An actual or perceived breach
of the Fund’s account at the Bitcoin Custodian could harm the Fund’s operations, result in partial or total loss of the Fund’s
assets, resulting in a reduction or destruction in the value of the Shares. The Fund may also cease operations, the occurrence of which
could similarly result in a reduction in the value of the Shares.
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 Shares.
Bitcoin transactions are typically
not reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified
and recorded in a block that is added to the Blockchain, an incorrect transfer or theft of bitcoin generally will not be reversible, and
the Fund may not be capable of seeking compensation for any such transfer or theft. Although the Fund’s transfers of bitcoin will
regularly be made to or from the Bitcoin Account, it is possible that, through computer or human error, or through theft or criminal action,
the Fund’s bitcoin could be transferred from the Bitcoin Account in incorrect amounts or to unauthorized third parties, or to uncontrolled
accounts.
To the extent that the Fund
is unable to seek a corrective transaction with a third-party recipient of an unauthorized or incorrect transaction or is incapable of
identifying the third party which has received the Fund’s bitcoin through error or theft, the Fund will be unable to revert or otherwise
recover incorrectly transferred bitcoin. The Fund will also be unable to convert or recover its bitcoin transferred to uncontrolled accounts.
To the extent that the Fund is unable to seek redress for such error or theft, such loss could adversely affect the portion of the Shares’
value that is tied to bitcoin.
The lack of full insurance
and Shareholders’ limited rights of legal recourse against the Fund, Trustee, Sponsor, Trust Administrator, Non-Digital Custodian
and Bitcoin Custodian expose the Fund and its Shareholders to the risk of loss of the Fund’s bitcoin for which no person or entity
is liable.
The Fund is not a banking
institution or otherwise a member of the FDIC or Securities Investor Protection Corporation (“SIPC”) and, therefore, deposits
held with or assets held by the Fund are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions. In
addition, neither the Fund nor the Sponsor insure the Fund’s bitcoin. While the Bitcoin Custodian has advised the Sponsor that it
has insurance coverage up to a certain amount that could be used to repay losses of the digital assets it custodies on behalf of its clients,
including the Fund’s bitcoin, resulting from theft, Shareholders cannot be assured that the Bitcoin Custodian will maintain adequate
insurance, that such coverage will cover losses with respect to the Fund’s bitcoin, or that sufficient insurance proceeds will be
available to cover the Fund’s losses in full. The Bitcoin Custodian’s insurance may not cover the type of losses experienced
by the Fund. Alternatively, the Fund may be forced to share such insurance proceeds with other clients or customers of the Bitcoin Custodian,
which could reduce the amount of such proceeds that are available to the Fund. In addition, the bitcoin insurance market is limited, and
the level of insurance maintained by the Bitcoin Custodian may be substantially lower than the assets of the Fund. While the Bitcoin Custodian
maintains certain capital reserve requirements depending on the assets under custody, and such capital reserves may provide additional
means to cover client asset losses, the Fund cannot be assured that the Bitcoin Custodian will maintain capital reserves sufficient to
cover actual or potential losses with respect to the Fund’s digital assets.
[Furthermore, under the Bitcoin
Custody Agreement, the Bitcoin Custodian’s liability is limited as follows, among others: [ ]]. The Bitcoin Custodian is liable
for delays, suspension of operations, failure in performance, or interruption of service to the extent it is directly due to a cause or
condition beyond the reasonable control of the Bitcoin Custodian. In the event of potential losses incurred by the Fund as a result of
the Bitcoin Custodian losing control of the Fund’s bitcoin or failing to properly execute instructions on behalf of the Fund, the
Bitcoin Custodian’s liability with respect to the Fund will be subject to certain limitations which may allow it to avoid liability
for potential losses or may be insufficient to cover the value of such potential losses, even if the Bitcoin Custodian directly caused
such losses. Furthermore, the insurance maintained by the Bitcoin Custodian may be insufficient to cover its liabilities to the Fund.
Moreover, in the event of
an insolvency or bankruptcy of the Bitcoin Custodian in the future, given that the contractual protections and legal rights of customers
with respect to digital assets held on their behalf by third parties are relatively untested in a bankruptcy of an entity such as the
Bitcoin Custodian in the virtual currency industry, there is a risk that customers’ assets – including the Fund’s assets
– may be considered the property of the bankruptcy estate of the Bitcoin Custodian, and customers – including the Fund –
may be at risk of being treated as general unsecured creditors of such entities and subject to the risk of total loss or markdowns on
value of such assets.
Due to the novelty of digital
asset custodial arrangements courts have not yet considered this type of treatment for custodied digital assets and it is not possible
to predict with certainty how they would rule in such a scenario. If the Bitcoin Custodian became subject to insolvency proceedings and
a court were to rule that the custodied bitcoin were part of the Bitcoin Custodian’s general estate and not the property of the
Fund, then the Fund would be treated as a general unsecured creditor in the Bitcoin Custodian’s insolvency proceedings and the Fund
could be subject to the loss of all or a significant portion of its assets. Moreover, in the event of the bankruptcy of the Bitcoin Custodian,
an automatic stay could go into effect and protracted litigation could be required in order to recover the assets held with the Bitcoin
Custodian, all of which could significantly and negatively impact the Fund’s operations and the value of the Shares.
Under the Trust Agreement,
the Trustee and the Sponsor will not be liable for any liability or expense incurred, including, without limitation, as a result of any
loss of bitcoin by the Bitcoin Custodian absent willful misconduct, gross negligence, reckless disregard or bad faith on the part of the
Trustee or the Sponsor or breach by the Sponsor of the Trust Agreement, as the case may be. As a result, the recourse of the Fund or the
Shareholders to the Trustee or the Sponsor, including in the event of a loss of bitcoin by the Bitcoin Custodian, is limited.
The Shareholders’ recourse
against the Sponsor, the Trustee, and the Fund’s other service providers for the services they provide to the Fund, including, without
limitation, those relating to the holding of bitcoin or the provision of instructions relating to the movement of bitcoin, is limited.
For the avoidance of doubt, none of the Sponsor, the Trustee, nor any of their affiliates, nor any other party has guaranteed the assets
or liabilities, or otherwise assumed the liabilities, of the Fund, or the obligations or liabilities of any service provider to the Fund,
including, without limitation, the Bitcoin Custodian. The Bitcoin Custody Agreement provides that none of the Sponsor, the Trustee, nor
their affiliates shall have any obligation of any kind or nature whatsoever, by guaranty, enforcement or otherwise, with respect to the
performance of any the Fund’s obligations, agreements, representations or warranties under the Bitcoin Custody Agreement or any
transaction thereunder. Consequently, a loss may be suffered with respect to the Fund’s bitcoin that is not covered by the Bitcoin
Custodian’s insurance and for which no person is liable in damages. As a result, the recourse of the Fund or the Shareholders, under
applicable law, is limited.
Risks Related to the Regulation of Bitcoin
Digital asset markets
in the U.S. exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the
value of bitcoin or the Shares, such as by banning, restricting or imposing onerous conditions or prohibitions on the use of bitcoin,
mining activity, digital wallets, the provision of services related to trading and custodying bitcoin, the operation of the Bitcoin Network,
or the digital asset markets generally.
There is a lack of consensus
regarding the regulation of digital assets, including bitcoin, and their markets. As a result of the growth in the size of the digital
asset market, as well as the 2022 Events, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, SEC, OCC,
CFTC, FINRA, the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security,
the Federal Bureau of Investigation, the IRS, state financial institution regulators, and others) have been examining the operations of
digital asset networks, digital asset users and the digital asset markets. Many of these state and federal agencies have brought enforcement
actions or issued consumer advisories regarding the risks posed by digital assets to investors. Ongoing and future regulatory actions
with respect to digital assets generally or bitcoin in particular may alter, perhaps to a materially adverse extent, the nature of an
investment in the Shares, the portion of the Shares’ value that is tied to bitcoin, or the ability of the Fund to continue to operate.
The 2022 Events, including
among others the bankruptcy filings of FTX and its subsidiaries, Three Arrows Capital, Celsius Network, Voyager Digital, Genesis, BlockFi
and others, and other more recent developments in the digital asset markets, have resulted in calls for heightened scrutiny and regulation
of the digital asset industry, with a specific focus on intermediaries such as digital asset exchanges, platforms and custodians. Federal
and state legislatures and regulatory agencies may introduce and enact new laws and regulations to regulate crypto asset intermediaries,
such as digital asset exchanges and custodians. The March 2023 collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank,
which in some cases provided services to the digital assets industry, may amplify and/or accelerate these trends. On January 3, 2023,
the federal banking agencies issued a joint statement on crypto-asset risks to banking organizations following events which exposed vulnerabilities
in the crypto-asset sector, including the risk of fraud and scams, legal uncertainties, significant volatility, and contagion risk. Although
banking organizations are not prohibited from crypto-asset related activities, the agencies have expressed significant safety and soundness
concerns with business models that are concentrated in crypto-asset related activities or have concentrated exposures to the crypto-asset
sector.
US federal and state regulators,
as well as the White House, have issued reports and releases concerning crypto assets, including Bitcoin and crypto asset markets. Further,
in 2023 the House of Representatives formed two new subcommittees: the Digital Assets, Financial Technology and Inclusion Subcommittee
and the Commodity Markets, Digital Assets, and Rural Development Subcommittee, each of which were formed in part to analyze issues concerning
crypto assets and demonstrate a legislative intent to develop and consider the adoption of federal legislation designed to address the
perceived need for regulation of and concerns surrounding the crypto industry. However, the extent and content of any forthcoming laws
and regulations are not yet ascertainable with certainty, and it may not be ascertainable in the near future. A divided Congress makes
any prediction difficult. The Fund cannot predict how these and other related events will affect it or the crypto asset business.
In August 2021, the chair
of the SEC stated that he believed investors using digital asset trading platforms are not adequately protected, and that activities on
the platforms can implicate the securities laws, commodities laws and banking laws, raising a number of issues related to protecting investors
and consumers, guarding against illicit activity, and ensuring financial stability. The chair expressed a need for the SEC to have additional
authorities to prevent transactions, products, and platforms from “falling between regulatory cracks,” as well as for more
resources to protect investors in “this growing and volatile sector.” The chair called for federal legislation centering on
digital asset trading, lending, and decentralized finance platforms, seeking “additional plenary authority” to write rules
for digital asset trading and lending. It is not possible to predict whether Congress will grant additional authorities to the SEC or
other regulators, what the nature of such additional authorities might be, how they might impact the ability of digital asset markets
to function or how any new regulations that may flow from such authorities might impact the value of digital assets generally and bitcoin
held by the Fund specifically. The consequences of increased federal regulation of digital assets and digital asset activities could have
a material adverse effect on the Fund and the Shares.
In June 2023, the SEC filed
lawsuits against Coinbase and Binance, two large U.S. digital asset trading platforms, alleging that Coinbase and Binance had been operating
as unregistered securities exchanges, brokers and clearing agencies in violation of U.S. federal securities laws. While the SEC has not
alleged that bitcoin is a security, the outcome of these enforcement actions and others may result in the substantial restructuring of
the digital asset market in the United States. However, the SEC has recently faced setbacks in U.S. courts in its attempt to regulate
the digital asset markets. In July 2023, the U.S. District Court for the Southern District of New York ruled on the SEC’s action
against Ripple Labs, Inc. The court found that offers and sales of XRP, a digital token, to institutions and sophisticated individuals
constituted securities transactions, but that offers and sales of XRP on crypto exchanges, distributions to employees, and other third-party
developers were not securities transactions. More recently, the D.C. Circuit Court found that the SEC’s denial of the Grayscale
Bitcoin Trust’s listing was “arbitrary and capricious” under the Administrative Procedures Act in light of the SEC’s
approval of two similar bitcoin futures-based ETPs. Nonetheless, until the SEC’s numerous actions against digital asset market participants
are resolved, the structure of the digital asset market in the United States will remain subject to substantial regulatory risk, which
may impact the demand for digital assets and the continued availability of existing exchanges and offerings.
FinCEN requires any administrator
or exchanger of convertible digital assets to register with FinCEN as a money transmitter and comply with the anti-money laundering (“AML”)
regulations applicable to money transmitters. Entities which fail to comply with such regulations are subject to fines, may be required
to cease operations, and could have potential criminal liability. For example, in 2015, FinCEN assessed a $700,000 fine against a sponsor
of a digital asset for violating several requirements of the Bank Secrecy Act by acting as a money services business, or “MSB,”
and selling the digital asset without registering with FinCEN, and by failing to implement and maintain an adequate AML program. In 2017,
FinCEN assessed a $110 million fine against BTC-e, a now defunct digital asset exchange, for similar violations. The requirement that
exchangers that do business in the U.S. register with FinCEN and comply with AML regulations may increase the cost of buying and selling
bitcoin and therefore may adversely affect the price of bitcoin and an investment in the Shares.
The Office of Foreign Assets
Control (“OFAC”) of the U.S. Department of the Treasury (the “U.S. Treasury Department”) has added digital currency
addresses to the list of Specially Designated Nationals whose assets are blocked, and with whom U.S. persons are generally prohibited
from dealing. Such actions by OFAC, or by similar organizations in other jurisdictions, may introduce uncertainty in the market as to
whether bitcoin that has been associated with such addresses in the past can be easily sold. This “tainted” bitcoin may trade
at a substantial discount to untainted bitcoin. Reduced fungibility in the digital asset markets may reduce the liquidity of bitcoin and
therefore adversely affect their price.
In February 2020, then-U.S.
Treasury Secretary Steven Mnuchin stated that digital assets were a “crucial area” on which the U.S. Treasury Department has
spent significant time. Secretary Mnuchin announced that the U.S. Treasury Department is preparing significant new regulations governing
digital asset activities to address concerns regarding the potential use for facilitating money laundering and other illicit activities.
In December 2020, FinCEN, a bureau within the U.S. Treasury Department, proposed a rule that would require financial institutions to submit
reports, keep records, and verify the identity of customers for certain transactions to or from so-called “unhosted” wallets,
also commonly referred to as self-hosted wallets. In January 2021, U.S. Treasury Secretary nominee Janet Yellen stated her belief that
regulators should “look closely at how to encourage the use of digital assets for legitimate activities while curtailing their use
for malign and illegal activities.”
Under regulations from the
New York State Department of Financial Services (“NYDFS”), businesses involved in digital asset business activity for third
parties in or involving New York, excluding merchants and consumers, must apply for a license, commonly known as a BitLicense, from the
NYDFS and must comply with AML, cyber security, consumer protection, and financial and reporting requirements, among others. As an alternative
to a BitLicense, a firm can apply for a charter to become a limited purpose trust company under New York law qualified to engage in certain
digital asset business activities. Other states have considered or approved digital asset business activity statutes or rules, passing,
for example, regulations or guidance indicating that certain digital asset business activities constitute money transmission requiring
licensure.
The inconsistency in applying
money transmitting licensure requirements to certain businesses may make it more difficult for these businesses to provide services, which
may affect consumer adoption of bitcoin and its price. In an attempt to address these issues, the Uniform Law Commission passed a model
law in July 2017, the Uniform Regulation of Virtual Currency Businesses Act, which has many similarities to the BitLicense and features
a multistate reciprocity licensure feature, wherein a business licensed in one state could apply for accelerated licensure procedures
in other states. It is still unclear, however, how many states, if any, will adopt some or all of the model legislation.
Law enforcement agencies have
often relied on the transparency of blockchains to facilitate investigations. However, certain privacy-enhancing features have been, or
are expected to be, introduced to a number of digital asset networks. If the Bitcoin Network were to adopt any of these features, these
features may provide law enforcement agencies with less visibility into transaction-level data. Europol, the European Union’s law
enforcement agency, released a report in October 2017 noting the increased use of privacy-enhancing digital assets like Zcash and Monero
in criminal activity on the internet. Although no regulatory action has been taken to treat privacy-enhancing digital assets differently,
this may change in the future.
A determination that
bitcoin or any other digital asset is a “security” may adversely affect the value of bitcoin and the portion of the Shares’
value that is tied to bitcoin, and result in potentially extraordinary, nonrecurring expenses to, or termination of, the Fund.
Depending on its characteristics,
a digital asset may be considered a “security” under the federal securities laws. The test for determining whether a particular
digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Public, though non-binding,
statements by senior officials at the SEC indicate that the SEC does not consider bitcoin to be a security, at least currently, and the
staff has provided informal assurances to a handful of promoters that their digital assets are not securities. On the other hand, the
SEC has brought enforcement actions against the promoters of several other digital assets on the basis that the digital assets in question
are securities.
Whether a digital asset is
a security under the federal securities laws depends on whether it is included in the lists of instruments making up the definition of
“security” in the Securities Act, the Exchange Act and the Investment Company Act. Digital assets as such do not appear in
any of these lists, although each list includes the terms “investment contract” and “note,” and the SEC has typically
analyzed whether a particular digital asset is a security by reference to whether it meets the tests developed by the federal courts interpreting
these terms, known as the Howey and Reves tests, respectively. For many digital assets, whether or not the Howey or Reves tests are met
is difficult to resolve definitively, and substantial legal arguments can often be made both in favor of and against a particular digital
asset qualifying as a security under one or both of the Howey and Reves tests. Adding to the complexity, the SEC staff has indicated that
the security status of a particular digital asset can change over time as the relevant facts evolve.
As part of determining whether
bitcoin is a security for purposes of the federal securities laws, the Sponsor takes into account a number of factors, including the various
definitions of “security” under the federal securities laws and federal court decisions interpreting elements of these definitions,
such as the U.S. Supreme Court’s decisions in the Howey and Reves cases, as well as reports, orders, press releases, public statements
and speeches by the SEC and its staff providing guidance on when a digital asset may be a security for purposes of the federal securities
laws. Finally, the Sponsor discusses the security status of bitcoin with its external securities lawyers. Through this process the Sponsor
believes that it is applying the proper legal standards in determining that bitcoin is not a security in light of the uncertainties inherent
in the Howey and Reves tests. However, because of these uncertainties, the Sponsor acknowledges that bitcoin may in the future be found
by the SEC or a federal court to be a security notwithstanding the Sponsor’s prior conclusion; and the Sponsor’s prior conclusion,
even if reasonable under the circumstances, would not preclude legal or regulatory action based on the presence of a security.
The Sponsor may dissolve the
Fund if the Sponsor determines bitcoin is a security under the federal securities laws, whether that determination is initially made by
the Sponsor itself, or because the SEC or a federal court subsequently makes that determination. Because the legal tests for determining
whether a digital asset is or is not a security often leave room for interpretation, for so long as the Sponsor believes there to be good
faith grounds to conclude that the Fund’s bitcoin is not a security, the Sponsor does not intend to dissolve the Fund on the basis
that bitcoin could at some future point be determined to be a security.
Any enforcement action by
the SEC or a state securities regulator asserting that bitcoin is a security, or a court decision, to that effect would be expected to
have an immediate material adverse impact on the trading value of Bitcoin, as well as the Shares. This is because the business models
behind most digital assets are incompatible with regulations applying to transactions in securities. If a digital asset is determined
or asserted to be a security, it is likely to become difficult or impossible for the digital asset to be traded, cleared or custodied
in the United States through the same channels used by non-security digital assets, which in addition to materially and adversely affecting
the trading value of the digital asset is likely to significantly impact its liquidity and market participants’ ability to convert
the digital asset into U.S. dollars.
For example, in 2020 the SEC
filed a complaint against the promoters of XRP alleging that they raised more than $1.3 billion through XRP sales that should have been
registered under the federal securities laws, but were not. In the years prior to the SEC’s action, XRP’s market capitalization
at times reached over $100 billion. However, in the weeks following the SEC’s complaint, XRP’s market capitalization fell
to less than $10 billion, which was less than half of its market capitalization in the days prior to the complaint. In July 2023, the
U.S. District Court for the Southern District of New York ruled on the SEC’s action against Ripple Labs, Inc. The court found that
offers and sales of XRP to institutions and sophisticated individuals constituted securities transactions, but that offers and sales of
XRP on crypto exchanges, distributions to employees, and other third-party developers were not securities transactions. The SEC’s
action against XRP’s promoters underscores the continuing uncertainty around which digital assets are securities, and demonstrates
that such factors as how long a digital asset has been in existence, how widely held it is, how large its market capitalization is and
that it has actual usefulness in commercial transactions, ultimately may have no bearing on whether the SEC or a court will find it to
be a security.
In addition, if bitcoin is
determined to be a security, the Fund could be considered an unregistered “investment company” under SEC rules, which could
necessitate the Fund’s liquidation. In this case, the Fund and the Sponsor may be deemed to have participated in an illegal offering
of securities and there is no guarantee that the Sponsor will be able to register the Fund under the Investment Company Act at such time
or take such other actions as may be necessary to ensure the Fund’s activities comply with applicable law, which could force the
Sponsor to liquidate the Fund.
Moreover, whether or not the
Sponsor or the Fund were subject to additional regulatory requirements as a result of any SEC or federal court determination that its
assets include securities, the Sponsor may nevertheless decide to terminate the Fund, in order, if possible, to liquidate the Fund’s
assets while a liquid market still exists. As a result, if the SEC or a federal court were to determine that bitcoin is a security, it
is likely that the portion of the Shares’ value that is tied to bitcoin would decline significantly, and that the Fund itself would
be terminated and, if practical, its assets liquidated.
Future and current regulations
by a U.S. or foreign government or quasi-governmental agency could have an adverse effect on an investment in the Fund.
The regulation of bitcoin
and related products and services continues to evolve, may take many different forms and will, therefore, impact the Bitcoin Network and
bitcoin and their usage in a variety of manners. The inconsistent and sometimes conflicting regulatory landscape may make it more difficult
for bitcoin businesses to provide services, which may impede the growth of the bitcoin economy and have an adverse effect on consumer
adoption of bitcoin. There is a possibility of future regulatory change altering, perhaps to a material extent, the nature of an investment
in the Shares or the ability of the Trust to continue to operate.
Changes to current regulatory
determinations of bitcoin’s status under federal or state securities laws, changes to regulations surrounding bitcoin futures or
related products, or actions by a U.S. or foreign government or quasi-governmental agency exerting regulatory authority over bitcoin,
the Bitcoin Network, bitcoin trading, or related activities impacting other parts of the digital asset market, may adversely impact bitcoin
and therefore may have an adverse effect on the value of an investment in the Trust.
Risks Related to Carbon Credit Futures and
the Fund’s Status as a Commodity Pool
The Fund is subjected
to exposure to risks of futures contracts.
The primary risks associated
with the use of futures contracts include: (a) an imperfect correlation between the change in market value of the reference asset and
the price of the futures contract; (b) possible lack of a liquid secondary market for a futures contract and the resulting inability to
close a futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the inability
to predict correctly the direction of market prices, interest rates, currency exchange rates and other economic factors; and (e) risks
associated with the underlying asset. Market fraud and/or manipulation and other fraudulent trading
practices such as the intentional dissemination of false or misleading information (e.g., false rumors) can, among other things, lead
to a disruption of the orderly functioning of markets, significant market volatility, and cause the value of Carbon Credit Futures to
fluctuate quickly and without warning. Depending on the timing of an investor’s purchases and sales of the Fund’s Shares,
these pricing anomalies could cause the investor to incur losses.
As
a futures contract the Fund owns approaches its settlement date, the Fund may sell that futures contract and reinvest the proceeds in
a similar contract with a more distant settlement date. This process is referred to as “rolling” a futures contract. The successful
use of such a strategy depends upon the Sponsor’s skill and experience. Although the Fund will attempt to roll from an expiring
futures contract to another contract to mirror that of the Index, the Fund nevertheless may incur a cost to “roll” the contract.
In a commodity futures market where current month expiring contracts trade at a lower price than next month’s contract, a situation
referred to as “contango,” absent the impact of the overall movement in commodity prices, the Fund may experience an adverse
impact because it would be selling less expensive contracts and buying more expense contracts. In the event of a prolonged period of contango,
and absent the impact of rising or falling commodity prices, there could be a significant negative impact on the Fund when it “rolls”
its futures contract positions.
Futures
contracts are subject to inherent leverage risk because they are typically secured by margin deposits representing a small percentage
of a futures contract’s entire market value.
Commodity pools’ trading
positions in futures contracts are typically required to be secured by the deposit of margin funds that represent only a small percentage
of a futures contract’s entire market value. This feature creates the potential for commodity pools to “leverage” their
assets by purchasing or selling futures contracts with an aggregate notional amount in excess of the commodity pool’s assets.
The
Fund is subject to the risks associated with Commodity-Linked Derivatives.
The
value of a commodity-linked derivative investment typically is based upon the price movements of a physical commodity and may be affected
by changes in overall market movements, volatility of an index, changes in interest rates, or factors affecting a particular industry
or commodity, such as drought, floods, weather, embargoes, tariffs and international economic, political and regulatory developments.
Investments in commodity-linked derivatives may be subject to greater volatility than non-derivative based investments. Commodity-linked
derivatives also may be subject to credit and interest rate risks that in general affect the values of debt securities.
The Fund’s usage
of commodities derivatives investments involves additional, and potentially greater, risks of investing in the underlying asset directly.
The use of derivatives (including
futures and forwards) involves risks different from, or possibly greater than, the risks of investing directly in the underlying commodity.
These risks include, but are not limited to, leverage risk, liquidity risk, valuation risk, market risk, counterparty risk, and credit
risk. Derivatives may at times be highly illiquid, and the Fund may not be able to close out or sell a derivative at a particular time
or at an anticipated price. Derivatives can be difficult to value and valuation may be more difficult in times of market turmoil. There
may be imperfect correlation between the derivative and that of the reference asset, resulting in unexpected returns that could materially
adversely affect the Fund. Derivatives are also subject to additional risks such as operational risk, including settlement issues, and
legal risk, including that underlying documentation is incomplete or ambiguous. Certain derivatives (such as swaps and options) are bi-lateral
agreements that expose the Fund to counterparty risk. A counterparty (the other party to a transaction or an agreement or the party with
which the Fund executes transactions) to a transaction with the Fund may be unable or unwilling to make timely principal, interest or
settlement payments, or otherwise honor its obligations. If the counterparty or its affiliate becomes insolvent, bankrupt or defaults
on its payment obligations to the Fund, the value of an investment held by the Fund may decline. Additionally, if any collateral posted
by the counterparty for the benefit of the Fund is insufficient or there are delays in the Fund’s ability to access such collateral,
the Fund may not be able to achieve its investment objective. In addition, the Fund may enter into transactions with a limited number
of counterparties, which may increase the Fund’s exposure to counterparty credit risk. Further, there is a risk that no suitable
counterparties will be willing to enter into, or continue to enter into, transactions with the Fund and, as a result, the Fund may not
be able to achieve its inverse investment objective or may decide to change its inverse investment objective.
Position limits and
margin requirements, among other limitations, may have the potential to cause tracking error, which could cause the price of Shares to
substantially vary from the Index.
If the Fund’s ability
to obtain exposure to Carbon Credit Futures to mirror the exposure of the Index is disrupted for any reason, including but not limited
to, limited liquidity in the Carbon Credit Futures markets, a disruption to the Carbon Credit Futures market, or as a result of margin
requirements or position limits imposed by the Fund’s FCMs, the exchanges on which the Carbon Credit Futures trade, or the CFTC,
the Fund would not be able to achieve its investment objective and may experience significant losses.
Position limits, accountability
limits and dynamic price fluctuation limits may limit the Fund’s ability to invest the proceeds of Baskets in Carbon Credit Futures.
As a result, when the Fund sells Baskets it may be limited in its ability to invest in Carbon Credit Futures. In such a case, the Fund
may hold larger amounts of cash and cash equivalents, which will impair the Fund’s ability to meet its investment objective of tracking
the Index.
Price fluctuation limits may
contribute to a lack of liquidity and have a negative impact on Fund performance. During periods of market illiquidity, including periods
of market disruption and volatility, it may be difficult or impossible for the Fund to buy or sell futures at desired prices or at all.
The
Fund is subject to the regulatory risks associated with being a commodity pool.
Under regulations promulgated
by the CFTC, the Fund is considered a commodity pool, and therefore is subject to regulation under the CEA and CFTC rules. The Sponsor
is registered as a CPO and CTA and manages the investments of the Fund in accordance with its investment objective and strategies, as
well as in accordance with CFTC rules. Commodity pools are subject to additional laws, regulations and enforcement policies, all of which
may potentially increase compliance costs and may affect the operations and financial performance of the Fund. Additionally, positions
in commodity-linked derivative instruments may have to be liquidated at disadvantageous times or prices to prevent the Fund from exceeding
any applicable position limits established by the CFTC. Such actions may subject the Fund to substantial losses.
Registration of the
Sponsor as a CPO imposes additional compliance obligations on the Sponsor and the Fund related to additional laws, regulations and enforcement
policies, which could increase compliance costs and may affect the operations and financial performance of the Fund.
The Fund’s investment
exposure to carbon credit futures contracts will cause it to be deemed to be a commodity pool, thereby subjecting the Fund to regulation
under the CEA and CFTC regulations. The Sponsor is registered as a CPO and the Fund will be operated in accordance with applicable CFTC
regulations. Registration as a CPO imposes additional compliance obligations on the Sponsor and the Fund related to additional laws, regulations
and enforcement policies, which could increase compliance costs and may affect the operations and financial performance of the Fund. For
example, the Sponsor will be required to post certain documents on the Fund’s website, make periodic filings with the NFA, retain
certain records, and implement certain policies and procedures.
The
Fund is subject to risks associated with carbon emissions allowances and cap-and-trade regimes due to its investment in Carbon Credit
Futures.
There
is no assurance that cap-and-trade regimes will continue to exist. Cap-and-trade regimes were designed to attempt to put a cap on pollution
by putting a price on carbon emissions, but the approach may not prove to be an effective method of reducing GHG emissions and or in achieving
climate change objectives. As a result or due to other factors, cap-and-trade regimes may be terminated or may not be renewed upon their
expiration. New technologies may arise that may diminish or eliminate the need for cap-and-trade markets. Ultimately, the cost of emissions
credits is determined by the cost of actually reducing emissions levels. If the price of credits becomes too high, it will be more economical
for companies to develop or invest in green technologies, thereby suppressing the demand for credits and adversely affecting the Fund.
Cap-and-trade
regimes set emission limits (i.e., the right to emit a certain quantity of GHG emissions), which can be allocated or auctioned to the
parties regulated under the regime up to the total emissions cap. This allocation may be larger or smaller than is needed for a stable
price of credits and can lead to large price volatility and may impact the Fund. Depending upon the industries covered under the cap-and-trade
regime, unpredictable demand for their products and services can affect the value of GHG emissions credits. For example, very mild winters
or very cool summers can decrease demand for electric utilities and therefore require fewer carbon credits to offset reduced production
and GHG emissions.
If
fines or other penalties for non-compliance are not enforced, incentives to purchase GHG credits will deteriorate, which could result
in a decline in the price of emissions credits and may adversely impact the Fund.
Climate
change regulations may change, which could cause loss in value of the carbon underlying the Carbon Credit Futures and the Carbon Credit
Futures itself.
The Fund is subject to the
risk that a change in law and related regulations will impact the way the Fund operates, increase the particular costs of the Fund’s
operations and/or change the competitive landscape. Additional legislative or regulatory changes could occur that may materially and adversely
affect the Fund. Regulatory risk related to changes in regulation and enforcement of cap-and-trade regimes could adversely affect market
behavior. In addition, as cap-and-trade markets and carbon credit markets develop, new regulation with respect to these markets may arise,
which could have a negative effect on the value and liquidity of the cap-and-trade markets and the Fund.
There
is no assurance that CCM regimes will continue to exist.
There
is no assurance that CCM regimes will continue to exist. Cap-and-trade regimes were designed to attempt to put a cap on pollution by putting
a price on carbon emissions, but the approach may not prove to be an effective method of reduction in GHG emissions and or in achieving
climate change objectives. As a result or due to other factors, cap-and-trade regimes may be terminated or may not be renewed upon their
expiration. New technologies may arise that may diminish or eliminate the need for CCMs. Ultimately, the cost of emissions credits
is determined by the cost of actually reducing emissions levels. If the price of credits becomes too high, it will be more economical
for companies to develop or invest in green technologies, thereby suppressing the demand for credits and adversely affect the Fund. Cap-and-trade
regimes set emission limits (i.e., the right to emit a certain quantity of GHG emissions), which can be allocated or auctioned to the
parties regulated under the regime up to the total emissions cap. This allocation may be larger or smaller than is needed for a stable
price of credits and can lead to large price volatility and may impact the Fund. Depending upon the industries covered under the CCM regime,
unpredictable demand for their products and services can affect the value of GHG emissions credits. For example, very mild winters or
very cool summers can decrease demand for electric utilities and therefore require fewer carbon credits to offset reduced production and
GHG emissions. If fines or other penalties for non-compliance are not enforced, incentives to purchase GHG credits will deteriorate, which
could result in a decline in the price of emissions credits and may adversely impact the Fund.
The Fund is also exposed
to the risks of the underlying commodity, the carbon credits, linked to the Carbon Credit Futures.
The value of a commodity-linked
derivative investment typically is based upon the price movements of a physical commodity and may be affected by changes in overall market
movements, volatility of an index, changes in interest rates, or factors affecting a particular industry or commodity, such as drought,
floods, weather, embargoes, tariffs and international economic, political and regulatory developments. Investments in commodity-linked
derivatives may be subject to greater volatility than non-derivative based investments. Commodity-linked derivatives also may be subject
to credit and interest rate risks that in general affect the values of debt securities.
The Fund is exposed
to multiple geographic risks due to obtaining exposure to carbon markets in multiple geographic regions through its exposure to the Carbon
Credit Futures that comprise the Index.
The Fund’s investments
are expected to be in various countries or regions and, therefore the Fund may be susceptible to adverse market, political, regulatory,
and geographic events affecting that country, countries or region. Such geographic focus also may subject the Fund to a higher degree
of volatility than a more geographically diversified fund.
| ● | European Union Risk. Because the Fund is exposed to carbon credits issued under the EU ETS cap-and-trade
program, the Fund’s performance may be negatively impacted by factors affecting the European Union. The economies of the European
Union are dependent to a significant extent on those of certain key trading partners, including China, the United States, and other European
countries. A reduction in spending on products and services exported from the European Union, or volatility in the financial markets of
member countries, may have an adverse impact on the broader European Union economy and could adversely affect the Fund. Separately, the
European Union faces issues involving its membership, structure, procedures and policies. The United Kingdom (UK) officially withdrew
from the European Union on January 31, 2020. The UK, European Union and broader global economy may still experience volatility in foreign
exchange markets as a result of these events. The UK’s withdrawal may also destabilize some or all of the other European Union member
countries and/or the Eurozone. The exit of additional member states from the European Union would subject its currency and banking system
to increased risk and would likely result in increased volatility, illiquidity and potentially lower economic growth in the affected markets.
Additionally, the reintroduction of national currencies in one or more European Union countries or the abandonment of the Euro as a currency
could adversely affect the Fund. |
| ● | California Risk. Because the Fund is exposed to carbon credits issued under the CCA cap-and-trade
program, the Fund’s performance also may be negatively impacted by factors affecting California. For example, natural disasters
may disrupt the local, state or regional economy or certain sectors of the economy and may impact the prices of such carbon credit futures.
California’s budget and fiscal operations face certain structural impediments and rely on revenue sources which have been historically
sensitive to the economic environment. California’s diverse economy is the largest in the United States and one of the largest in
the world with major components including high technology, trade, entertainment, manufacturing, tourism, construction, agriculture and
services. Any downturn in these sectors or related industries may adversely affect the economy of the state and the prices of such Carbon
Credit Futures. |
| ● | Eastern U.S. Risk. Because the Fund is exposed to carbon credits issued under the RGGI cap-and-trade
program, the Fund’s performance also may be negatively impacted by factors affecting the Eastern region of the United States. For
example, flooding, warming temperatures, and precipitation variability are growing challenges in the Eastern region of the United States
and may disrupt the local, state, or regional economies of the Eastern states or certain sectors of those economies and may impact the
prices of such carbon credit futures. The economies of the Eastern region of the United States are comprised of components including agriculture,
tourism, professional services, and manufacturing. Any downturn in these sectors or related industries may adversely affect the economy
of the Eastern region of the United States and the prices of such Carbon Credit Futures. |
The Fund
may experience risks related to the energy, agriculture and metal sectors associated with its trading in carbon credit futures contracts.
The market values of the companies
in the energy, agriculture and metal sectors and industries are highly dependent on supply and demand resources, economic conditions,
and technological advances among other factors. As a result, these sectors and industries can be volatile segments of the market. Companies
in these sectors are also frequently subject to substantial regulation and may be subject to competitive or fixed pricing structures,
which may increase the cost of business and limit potential earnings. Companies in these sectors also may have significant exposure to
emerging markets or developing countries and, thus, be subject to a greater risk of expropriation, nationalization or other adverse governmental
policies.
The Fund may have a
limited number of Futures Commission Merchants to buy and sell Carbon Credit Futures.
The Fund may have a limited
number of FCMs through which it may buy Carbon Credit Futures. Volatility in the carbon credit markets may lead to the Fund’s
FCMs to impose risk mitigation procedures that could limit the Fund’s investment in Carbon Credit Futures beyond the accountability
and position limits imposed. An FCM could impose a financial ceiling on initial margin that could change and become more or less restrictive
on the Fund’s activities depending upon a variety of conditions beyond the Sponsor’s control. If the Fund’s FCMs were
to impose position limits, or if any other FCM with which the Fund establishes a relationship in the future were to impose position limits,
the Fund’s ability to meet its investment objective could be negatively impacted. The Fund will seek to monitor and manage its existing
relationships with its FCMs and will seek additional relationships with FCMs as needed.
The Fund may experience
a loss if it is required to sell cash equivalents at a price lower than the price at which they were acquired.
If the Fund is required to
sell its cash equivalents at a price lower than the price at which they were acquired, the Fund will experience a loss. This loss may
adversely impact the price of the Shares and may decrease the correlation between the price of the Shares and the Index. The value of
cash equivalents held by the Fund generally moves inversely with movements in interest rates. The prices of longer maturity securities
are subject to greater market fluctuations as a result of changes in interest rates. While the short-term nature of the Fund’s investments
in cash equivalents should minimize the interest rate risk to which the Fund is subject, it is possible that the cash equivalents held
by the Fund will decline in value.
Certain of the Fund’s
investments could be illiquid, which could cause large losses to investors at any time.
If the Fund’s ability
to obtain exposure to Carbon Credit Futures in accordance with its investment objective is disrupted for any reason including, because
of limited liquidity or a disruption in the carbon credit futures market, or as a result of margin requirements or position limits imposed
by the Fund’s FCMs, exchanges, or the CFTC, the Fund may not be able to achieve its investment objective and may experience significant
losses. Any disruption in the Fund’s ability to obtain exposure to Carbon Credit Futures will cause the Fund’s performance
to deviate from the performance of Index. In addition, the Fund might grow to a size where a lack of liquidity in the futures market meant
that the Fund could not sell enough futures contracts to honor redemption requests. Unexpected market illiquidity may cause major losses
to investors at any time or from time to time. Because Carbon Credit Futures may be illiquid, the Fund’s holdings may be more difficult
to liquidate at favorable prices in periods of illiquid markets and losses may be incurred during the period in which positions are being
liquidated.
Risks Related to the Index
The Fund seeks the investment
performance of the Index and is accordingly subject to the risks associated therewith.
The Fund is not actively managed;
rather, the Fund seeks the investment performance of the Index through its investments in bitcoin and the Carbon Credit Futures that comprise
the Index. The Fund seeks this exposure regardless of the investment merits associated with the assets. The Fund does not seek to outperform
the returns of the Index.
The Index has a limited
operating history and may perform in unanticipated ways.
The Index is new and has a
limited performance history. There is no assurance that Vinter and Solactive will compile the Index accurately, or that the Index will
be determined, composed or calculated accurately. While Vinter provides descriptions of what the Index is designed to achieve, neither
Vinter, Solactive nor either of its agents provide any warranty or accept any liability in relation to the quality, accuracy or completeness
of the Index or its related data, and they do not guarantee that the Index will be in line with the methodology. The Sponsor does not
provide any warranty or guarantee against the errors of Vinter or Solactive or any agent thereof.
Vinter and/or Solactive
could experience system failures or errors.
If the computers or other
facilities of Vinter and/or Solactive, data providers and/or relevant stock exchange malfunction for any reason, calculation and dissemination
of the Index may be delayed. Errors in Index data, the Index computations and/or construction may occur from time to time and may not
be identified and/or corrected for a period of time or at all, which may have an adverse impact on the Fund and the Shareholders. Any
of the foregoing may lead to the errors in the Index, which may lead to a different investment outcome for the Fund and its Shareholders
than would have been the case had such events not occurred. Consequently, losses or costs associated with the Index’s errors or
other risks described above will generally be borne by the Fund and the Shareholders and neither the Sponsor nor its affiliates or agents
make any representations or warranties regarding the foregoing.
The Fund may not be
successful in implementing its investment strategies to track the performance of the Index.
Although the Fund will attempt
to structure its portfolio so that investments track the Index, the Fund may not achieve the desired degree of correlation between its
performance and that of the Index, and thus may not achieve its investment objective. The difference in performance may be due to factors
such as fees, transaction costs, redemptions of, and subscriptions for, Shares, pricing differences or the cost to the Trust of complying
with various new or existing regulatory requirements. Tracking error risk may be heightened in volatile markets or under other unusual
market conditions.
Risks related to pricing.
The Fund’s portfolio
will be priced, including for purposes of determining NAV, based upon the estimated fair market value for bitcoin determined by Vinter,
as well as the price of the Carbon Credit Futures that comprise 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. Vinter Provider has substantial discretion
at any time to change the methodology used to determine the estimated fair market value of bitcoin, including the spot markets underlying
its methodology. Neither Vinter nor Solactive is under any obligations to take the needs of the Fund, the Fund’s Shareholders or
anyone else into consideration in connection with such changes.
The Index Pricing Sources
(defined below) used by Vinter are digital asset spot markets that facilitate the buying and selling of bitcoin and other digital assets.
Although many Index Pricing Sources refer to themselves as “exchanges,” they are not registered with, or supervised by, the
SEC or CFTC and do not meet the regulatory standards of a national securities exchange or designated contract market. For these reasons,
among others, purchases and sales of bitcoin may be subject to temporary distortions or other disruptions due to various factors, including
the lack of liquidity in the markets and government regulation and intervention. These circumstances could affect the price of bitcoin
determined by Vinter.
The NAV of the Fund will change
as fluctuations occur in the market price of the Fund’s bitcoin holdings and Carbon Credit Futures exposure. Shareholders should
be aware that the public trading price per Share may be different from the NAV for a number of reasons, including price volatility, trading
activity, the closing of bitcoin trading platforms due to fraud, failure, security breaches or otherwise, and the fact that supply and
demand forces at work in the secondary trading market for Shares are related, but not identical, to the supply and demand forces influencing
the market price of bitcoin.
Shareholders also should note
that the size of the Fund in terms of total bitcoin held may change substantially over time and as Creation Baskets are created and redeemed,
even though such issuances and redemptions of Baskets will be effectuated in cash.
In the event that the value
of the Fund’s bitcoin holdings and/or NAV is incorrectly calculated, neither the Sponsor nor the Administrator will be liable for
any error and such misreporting of valuation data could adversely affect the value of the Shares.
The Index price being
used in calculating the price of bitcoin may not be consistent with GAAP. To the extent that the Fund’s financial statements are
determined using a different pricing source that is consistent with GAAP, the NAV reported in the Fund’s periodic financial statements
may differ, in some cases significantly, from the Fund’s NAV determined using the Index pricing.
The Fund will determine its
NAV on each Business Day based on the value of bitcoin and Carbon Credit Futures represented in the portfolio. The methodology used to
value bitcoin by the Index and by the Fund in its calculation of NAV may not be deemed consistent with GAAP. To the extent the methodology
used to calculate bitcoin is deemed inconsistent with GAAP, the Fund will utilize an alternative GAAP-consistent pricing source for purposes
of the Fund’s periodic financial statements. Creation and redemption of Baskets the Sponsor’s management fee and other expenses
borne by the Fund will be determined using the Fund’s NAV determined daily in accordance with the Index’s and Fund’s
pricing methodology. Such NAV of the Fund determined using this methodology may differ, and in some cases significantly, from the NAV
reported in the Fund’s periodic financial statements.
Risks Related to the Fund and the Shares
Shareholders do not
have the protections associated with ownership of shares in an investment company registered under the Investment Company Act.
The Investment Company Act
is designed to protect investors by preventing insiders from managing investment companies to their benefit and to the detriment of public
investors, such as: the issuance of securities having inequitable or discriminatory provisions; the management of investment companies
by irresponsible persons; the use of unsound or misleading methods of computing earnings and asset value; changes in the character of
investment companies without the consent of investors; and investment companies from engaging in excessive leveraging. To accomplish these
ends, the Investment Company Act requires the safekeeping and proper valuation of fund assets, greatly restricts transactions with affiliates,
limits leveraging, and imposes governance requirements as a check on fund management.
The Fund is not registered
as an investment company under the Investment Company Act and the Sponsor believes that the Fund is not required to register under such
act. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies.
The Fund is a passive
investment vehicle. The Fund is not actively managed and will be affected by a general decline in the price of its assets.
The Fund is a passive investment
vehicle that does not seek to generate returns beyond tracking the value of the Index. The Sponsor does not actively manage the assets
held by the Fund. This means the Sponsor does not speculatively sell assets at times when their prices are high, or acquire assets at
low prices in the expectation of future price increases. It also means the Sponsor does not make use of any of the hedging techniques
available to professional bitcoin investors to attempt to reduce the risks of losses resulting from price decreases. Any losses sustained
by the Fund will adversely affect the value of your Shares.
The amount of the Fund’s
assets represented by each Share will decline over time as the Fund pays the Management Fee and additional expenses borne by the Fund,
and as a result, the value of the Shares may decrease over time.
The amount of assets represented
by each Share will decrease over the life of the Fund due to the Fund paying the Management Fee and other Fund expenses. Without increases
in the price of bitcoin and/or Carbon Futures Credits sufficient to compensate for that decrease, the price of the Shares will also decline
and you will lose money on your investment in Shares.
[Although the Sponsor has
agreed to assume all organizational and certain ordinary administrative and marketing expenses incurred by the Fund, not all Fund expenses
have been assumed by the Sponsor. For example, any taxes and other governmental charges that may be imposed on the Fund’s property
will not be paid by the Sponsor. The Fund also pays all transaction related fees and expenses charged in connection with trading activities
for the Fund’s investments and for maintenance of its CFTC regulatory status as a commodity pool. As part of its agreement to assume
some of the Fund’s ordinary administrative expenses, the Sponsor has agreed to pay ordinary legal fees and expenses of the Fund
not in excess of $[ ] per annum. Any legal fees and expenses in excess of the amount required under the Trust Agreement will be the responsibility
of the Fund.]
Because the Fund does not
have any income, it needs to sell assets to cover the Management Fee and expenses not assumed by the Sponsor. The Fund may also be subject
to other liabilities (for example, as a result of litigation) that have also not been assumed by the Sponsor. The only source of funds
to cover those liabilities will be sales of bitcoin [and Carbon Credit Futures] held by the Fund. The result of these sales is a decrease
in the amount of assets represented by each Share. New deposits of bitcoin [and/or Carbon Credit Futures], received in exchange for new
Shares issued by the Fund, do not reverse this trend.
A decrease in the amount of
bitcoin and/or exposure to Carbon Credit Futures represented by each Share results in a decrease in its price even if the price of bitcoin
and/or Carbon Credit Futures has not changed. To retain the Share’s original price, the price of the Fund’s assets has to
increase. Without that increase, the reduced amount of Fund assets represented by the Share will have a correspondingly lower price. If
these increases do not occur, or are not sufficient to counter the lesser amount of Fund assets represented by each Share, you will sustain
losses on your investment in Shares.
An increase in the Fund expenses
not assumed by the Sponsor, or the existence of unexpected liabilities affecting the Fund, will force the Sponsor to sell larger amounts
of its assets, and will result in a more rapid decrease of the amount of assets represented by each Share and a corresponding decrease
in its value.
The Fund
has a limited number of financial institutions that may act as Authorized Purchasers.
The Fund has a limited number
of financial institutions that may act as Authorized Purchasers. To the extent they cannot or are otherwise unwilling to engage in creation
and redemption transactions with the Fund and no other Authorized Purchaser steps in, shares of the Fund may trade at a significant discount
to NAV and may face delisting from the Exchange.
There are certain risks
and tax considerations due to the Fund’s cash transactions for the creation and redemption processes.
Like other ETFs, the Fund
sells and redeems its shares only in large blocks called Creation Baskets and only to “Authorized Purchasers.” Unlike many
other ETFs, however, the Fund expects to effect its creations and redemptions fully for cash, rather than in-kind securities. Paying redemption
proceeds in cash rather than through in-kind delivery of portfolio securities may require the Fund to dispose of or sell portfolio investments
to obtain the cash needed to distribute redemption proceeds at an inopportune time, and the Fund may recognize taxable gain on such dispositions
or sales.
The use of cash creations
and redemptions may adversely affect the arbitrage transactions by Authorized Participants intended to keep the price of the Shares closely
linked to the Fund’s NAV, and as a result, the price of Shares may fall or otherwise diverge from NAV.
The use of cash creations
and redemptions, as opposed to in-kind creations and redemptions, could cause delays in trade execution due to potential operational issues
arising from implementing a cash creation and redemption model, which involves greater operational steps (and therefore execution risk)
than the in-kind creation and redemption model. Such delays could cause the execution price associated with such trades to materially
deviate from the Fund’s NAV. Even though the Authorized Participant is responsible for the dollar cost of such difference in prices,
Authorized Participants could default on their obligations to the Fund, or such potential risks and costs could lead to Authorized Participants,
who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies
between the price of the Shares and the price of the underlying Fund assets, to elect to not participate in the Fund’s Share creation
and redemption processes. This may adversely affect the arbitrage mechanism intended to keep the price of the Shares closely linked to
the Fund’s NAV, and as a result, the price of the Shares may fall or otherwise diverge from NAV. If the arbitrage mechanism is not
effective, purchases or sales of Shares on the secondary market could occur at a premium or discount to NAV, which could harm Shareholders
by causing them buy Shares at a price higher than the value of the underlying bitcoin held by the Fund or sell Shares at a price lower
than the value of the Fund’s assets, causing Shareholders to suffer losses. Alternatively, Authorized Participants could refrain
from participating in creating and redeeming Baskets, and if not replaced, could disrupt the Fund’s ability to operate.
There is a risk of stale
pricing when the markets in which the Fund’s investments trade are closed.
Because certain of the Fund’s
investments trade in markets that are closed when the Fund and Exchange are open, there are likely to be deviations between current pricing
of an underlying security and stale pricing, resulting in the Fund trading at a discount or premium to NAV greater than those incurred
by other ETFs.
The Fund is new and
investing in the Fund’s Shares may have more risks than an investment in an established, larger fund.
The Fund is new and does not
yet have shares outstanding. If the Fund does not grow large in size once it commences trading, it will be at greater risk than larger
funds of wider bid-ask spreads for its shares, trading at a greater premium or discount to NAV, liquidation and/or a stop to trading.
There may be times when
the market price of the Fund’s Shares is more than the NAV intra-day (at a premium) or less than the NAV intra-day (at a discount).
As a result, the Fund’s Shareholders may pay more than NAV when purchasing shares and receive less than NAV when selling Fund Shares.
There may be times when the
market price of the Fund’s Shares is more than the NAV intra-day (at a premium) or less than the NAV intra-day (at a discount).
As a result, the Fund’s Shareholders may pay more than NAV when purchasing shares and receive less than NAV when selling Fund Shares.
This risk is heightened in times of market volatility or periods of steep market declines. In such market conditions, market or stop loss
orders to sell Fund Shares may be executed at prices well below NAV.
Secondary market trading
is subject to bid-ask spreads and trading in Fund Shares may be halted by the Exchange because of market conditions or other reasons.
Investors buying or selling
shares in the secondary market will normally pay brokerage commissions, which are often a fixed amount and may be a significant proportional
cost for investors buying or selling relatively small amounts of shares. Secondary market trading is subject to bid-ask spreads and trading
in Fund Shares may be halted by the Exchange because of market conditions or other reasons. If a trading halt occurs, a shareholder may
temporarily be unable to purchase or sell Shares of the Fund. In addition, although the Fund’s Shares are listed on the Exchange,
there can be no assurance that an active trading market for shares will develop or be maintained or that the Fund’s shares will
continue to be listed.
As the Sponsor and its
management have limited history of operating investment vehicles like the Fund, their experience may be inadequate or unsuitable to manage
the Fund.
The past performances of the
Sponsor’s management in other investment vehicles are no indication of their ability to manage an investment vehicle such as the
Fund. If the experience of the Sponsor and its management is inadequate or unsuitable to manage an investment vehicle such as the Fund,
the operations of the Fund may be adversely affected. Furthermore, the Sponsor is currently engaged in the management of other investment
vehicles which could divert their attention and resources. If the Sponsor were to experience difficulties in the management of such other
investment vehicles that damaged the Sponsor or its reputation, it could have an adverse impact on the Sponsor’s ability to continue
to serve as Sponsor for the Fund.
Investors cannot be
assured of the Sponsor’s continued services, the discontinuance of which may be detrimental to the Fund.
Investors cannot be assured
that the Sponsor will be able to continue to service the Fund for any length of time. If the Sponsor discontinues its activities on behalf
of the Fund, the Fund may be adversely affected, as there may be no entity servicing the Fund for a period of time, and it will not have
a CPO and CTA. If the Sponsor’s registrations with the CFTC or memberships in the NFA were revoked or suspended, the Sponsor, as
applicable, would no longer be able to provide services and/or to render advice to the Fund. If the Sponsor were unable to provide services
and/or advice to the Fund, the Fund would be unable to pursue its investment objectives unless and until the Sponsor’s ability to
provide services and advice to the Fund was reinstated or a replacement for the Sponsor CPO or CTA, could be found. Such an event could
result in termination of the Fund.
The value of the Shares
could decrease if unanticipated operational or trading problems arise.
The mechanisms and procedures
governing the creation, redemption and offering of the Shares and storage of the Fund’s bitcoin has been developed specifically
for this product offering. There may be unanticipated problems or issues with respect to the mechanics of the Fund’s operations
and the trading of the Shares that could have an adverse effect on an investment in the Shares. In addition, although the Fund is not
actively “managed” by traditional methods, to the extent that unanticipated operational or trading problems or issues arise,
the Sponsor’s past experience and qualifications may not be suitable for solving these problems or issues.
If the processes of
creation and redemption of Baskets encounter any unanticipated difficulties, the opportunities for arbitrage transactions intended to
keep the price of the Shares closely linked to the Fund’s NAV may not exist and, as a result, the price of the Shares may fall.
If the creation and redemption
of the Shares encounter any unanticipated difficulties, including, but not limited to, the Fund’s inability in the future to obtain
regulatory approvals for the offer and sale of additional Shares after the present offering is completed, potential market participants
who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies
between the price of the Shares and the price of the underlying assets may not take the risk that, as a result of those difficulties,
they may not be able to realize the profit they expect. If this is the case, the liquidity of Shares and price of Shares may decline independent
of the NAV of Shares.
The postponement, suspension
or rejection of creation or redemption orders may adversely affect an investment in the Shares.
Under the Trust Agreement,
the Sponsor may suspend or reject creation or redemption orders, as applicable, for a variety of permitted reasons under certain circumstances.
To the extent such orders are suspended or rejected, the arbitrage mechanism resulting from the process through which Authorized Purchasers
create and redeem Shares directly with the Fund may fail to closely link the price of the Shares to the price of the underlying products
in the relevant commodities markets, as measured using the Bitcoin Price. If this is the case, the liquidity of the Shares may decline
and the price of the Shares may fluctuate independently of the value of the investments which comprise the Index and may fall.
The Fund could experience
unforeseen difficulties in operating and maintaining key elements of its technical infrastructure.
The Bitcoin Account has been
designed specifically to provide security for the bitcoin portion of the Fund’s assets, and may be expanded, updated and altered
from time to time. Any effort to expand, update or alter the security system is likely to be complex, and unanticipated delays in the
completion of these projects may lead to unanticipated project costs, operational inefficiencies or vulnerabilities to security breaches.
In addition, there may be problems with the design or implementation of the Bitcoin Account or with an expansion or upgrade thereto that
are not evident during the testing phases of design and implementation, and that may only become apparent after the Fund has utilized
the infrastructure. Any issues relating to the performance and effectiveness of the security procedures used by the Fund and the Bitcoin
Custodian to protect the Bitcoin Account, such as algorithms, codes, passwords, multiple signature systems, encryption and telephone call-backs
(together, the “Security Procedures”), may have an adverse impact on an investment in the Shares.
The Security Procedures implemented
by the Bitcoin Custodian are technical and complex, and the Fund depends on the Security Procedures to protect the storage, acceptance
and distribution of data relating to bitcoin and the digital wallets into which the Fund deposits its assets. The Security Procedures
may not protect against all errors, software flaws (i.e., bugs) or vulnerabilities. Defects in the Security Procedures may only be discovered
after a failure in the Bitcoin Custodian’s safekeeping and storage of the bitcoin portion of the Fund’s assets.
It is not uncommon for businesses
in the bitcoin space to experience large losses due to fraud and breaches of their security systems. For example, in September 2015, the
global bitcoin payment agent, BitPay, lost approximately $1.8 million of bitcoin due to a hacker’s fraudulent impersonation of BitPay’s
CFO, whereby the hacker was able to access the CFO’s email account and successfully request BitPay’s custodian to transfer
funds.
The Fund’s and
the Bitcoin Custodian’s ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping
of the bitcoin portion of the Fund’s assets.
Digital asset trading platforms
and large holders of bitcoin must adapt to technological change in order to secure and safeguard client accounts. While the Sponsor believes
the Security Procedures in place have been reasonably designed to safeguard the Fund’s assets from theft, loss, destruction or other
issues relating to hackers and technological attack, such assessment is based upon known technology and threats. As technological change
occurs, the security threats to the Fund’s bitcoin will likely adapt and previously unknown threats may emerge. Furthermore, the
Sponsor believes that the Fund may become a more appealing target of security threats as the size of the Fund’s assets grows. To
the extent that the Fund or the Bitcoin Custodian is unable to identify and mitigate or stop new security threats, the Fund’s assets
may be subject to theft, loss, destruction or other attack, which could have a negative impact on the performance of the Shares or result
in loss of the Fund’s assets.
Security threats to
the Bitcoin Account could result in the halting of Fund operations, the suspension of redemptions, and a loss of Fund assets or damage
to the reputation of the Fund, each of which could result in a reduction in the portion of the Shares’ value that is tied to bitcoin.
Security breaches, computer
malware and computer hacking attacks have been a prevalent concern in the Bitcoin Platform Market since the launch of the Bitcoin Network.
Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional
malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer
viruses, could harm the Fund’s business operations or result in loss of the Fund’s assets. Any breach of the Fund’s
infrastructure could result in damage to the Fund’s reputation and reduce demand for the Shares, resulting in a reduction in the
price of the Shares. Furthermore, the Sponsor believes that, as the bitcoin portion of the Fund’s assets grow, it may become a more
appealing target for security threats such as hackers and malware.
The Sponsor believes that
the Security Procedures that the Sponsor and Bitcoin Custodian utilize are reasonably designed to safeguard the Fund’s assets from
theft, loss, destruction or other issues relating to hackers and technological attack. Nevertheless, the Security Procedures cannot guarantee
the prevention of any loss due to a security breach, software defect or act of God that may be borne by the Fund, absent gross negligence,
willful misconduct or bad faith on the part of the Sponsor, the Bitcoin Custodian or their respective agents.
The Security Procedures and
operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of the Sponsor or
the Bitcoin Custodian, or otherwise, and, as a result, an unauthorized party may obtain access to the Bitcoin Account, private keys, data
or assets. Additionally, outside parties may attempt to fraudulently induce employees of the Bitcoin Custodian or the Sponsor to disclose
sensitive information in order to gain access to the Fund’s infrastructure. As the techniques used to obtain unauthorized access,
disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and
often are not recognized until launched against a target, the Sponsor may be unable to anticipate these techniques or implement adequate
preventative measures. If an actual or perceived breach of the Bitcoin Account occurs, the market perception of the effectiveness of the
Fund could be harmed, which could result in a reduction in the portion of the Shares’ value that is tied to bitcoin.
In the event of a security
breach of the Bitcoin Account, the Fund may cease operations, suspend redemptions or suffer a reduction in assets, the occurrence of each
of which could result in a reduction in the portion of the Shares’ value that is tied to bitcoin.
A loss of confidence
or breach in the Fund’s security and technology policies may adversely affect the Fund and the value of an investment in the Shares.
The Fund, Sponsor, Bitcoin
Custodian and each of their respective agents will take measures to protect the Fund and its assets from unauthorized access, damage or
theft. However, it is possible that the Security Procedures in place may not prevent the improper access to, or damage or theft of the
Fund’s assets. A security breach could harm the Fund’s reputation or result in the loss of some or all of the Fund’s
assets. A resulting perception that the Security Procedures do not adequately protect the Fund’s assets could result in a loss of
current or potential Shareholders, reducing demand for, and price of, the Shares.
The Fund’s assets
may be subject to loss, damage, theft or restriction on access.
There is a risk that some
or all of the Fund’s assets could be lost, stolen or destroyed. The Sponsor believes that the Fund’s assets held in the Bitcoin
Account will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal the Fund’s assets. Although
the Bitcoin Custodian uses Security Procedures with various elements, neither the Bitcoin Custodian nor the Sponsor can guarantee the
prevention of such loss, damage or theft, whether caused intentionally, accidentally or by an act of God. Access to the Fund’s assets
could also be restricted by natural events (such as an earthquake or flood) or human actions (such as a terrorist attack). Any of these
events may adversely affect the operations of the Fund and, consequently, an investment in the Shares.
The Shareholders’
limited rights of legal recourse against the Fund, Trustee, Sponsor, Transfer Agent, Vinter, Solactive and Custodians expose the Fund
and its Shareholders to the risk of loss of the Fund’s assets for which no person is liable.
Shareholders’ recourse
against the Fund, Trustee, Custodians and Sponsor under [New York] law governing their custody operations is limited. Similarly, the Shareholders’
recourse against the Sponsor, the Transfer Agent, Vinter and Solactive for the services they provide to the Fund, including those relating
to the provision of instructions relating to the movement of bitcoin, is limited. Consequently, a loss may be suffered with respect to
the Fund’s assets for which no person is liable in damages. Further, there is no third-party insurance to cover any loss that may
be suffered with respect to the Fund’s assets.
Assets held by the Fund
are not subject to FDIC or SIPC protections.
The Fund is not a banking
institution or otherwise a member of the Federal Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection
Corporation (“SIPC”) and, therefore, deposits held with or assets held by the Fund are not subject to the protections enjoyed
by depositors with FDIC or SIPC member institutions. The undivided interests in the Fund’s assets represented by Shares in the Fund
are not insured directly by the Trustee or the Sponsor.
The Custodians’
limited liability under the respective Bitcoin Custody Agreement or Non-Digital Custody Agreement may impair the ability of the Fund to
recover losses relating to its assets and any recovery may be limited, even in the event of fraud, to the market value of the assets at
the time the fraud is discovered.
Under the respective Bitcoin
Custody Agreement and the Non-Digital Custody Agreement, the respective custodian’s liability is limited to the greater of (i) the
market value of the Fund’s assets at the time the events giving rise to the liability occurred and (ii) the fair market value
of the Fund’s assets at the time that the custodian notifies the Sponsor or Trustee in writing, or the Sponsor or the Trustee otherwise
has actual knowledge of the events giving rise to the liability.
In addition, the Bitcoin Custodian
and Non-Digital Custodian will not be liable for any delay in performance or any non-performance of any of its custodial obligations under
the Trust Agreement by reason of any cause beyond its reasonable control, including acts of God, war or terrorism. The Bitcoin Custodian
and Non-Digital Custodian will also not be liable for any system failure or third-party penetration of the Fund’s accounts, unless
such system failure or third-party penetration is the result of gross negligence, bad faith or willful misconduct on the part of the Bitcoin
Custodian or Non-Digital Custodian. As a result, the recourse of the Fund or the Shareholder, under [New York] law, is limited.
The Fund may not have
adequate sources of recovery if its assets are lost, stolen or destroyed.
If the Fund’s assets
are lost, stolen or destroyed under circumstances rendering a party liable to the Fund, the responsible party may not have the financial
resources sufficient to satisfy the Fund’s claim. For example, as to a particular event of loss, the only source of recovery for
the Fund might be limited to the applicable Bitcoin Custodian or Non-Digital Custodian or, to the extent identifiable, other responsible
third parties (for example, a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage)
to satisfy a valid claim of the Fund.
The liquidity of the
Shares may be affected if Authorized Purchasers cease to perform their obligations under the Authorized Purchaser Agreements.
In the event that one or more
Authorized Purchasers having substantial interests in Shares or otherwise responsible for a significant portion of the Shares’ daily
trading volume on the Exchange terminates its Authorized Purchaser Agreement, the liquidity of the Shares would likely decrease, which
could adversely affect the market price of, and an investment in, the Shares.
There is no guarantee
that an active trading market for the Shares will continue to develop.
There can be no assurance
an active trading market of the Shares will develop on the Exchange. The Sponsor may elect to terminate the Fund if it determines, in
its sole discretion, that the Fund is not an economically viable size, which could result in the liquidation of the Fund’s asset
at a time that is disadvantageous to Shareholders.
To the extent that the Exchange
halts trading in the Shares, whether on a temporary or permanent basis, investors may not be able to buy or sell Shares, thus adversely
affecting an investment in the Shares. If an active trading market for the Shares does not exist or continue to exist, the market prices
and liquidity of the Shares may be adversely affected.
The Fund may be required
to terminate and liquidate at a time that is disadvantageous to Shareholders.
If the Fund is required to
terminate and liquidate, such termination and liquidation could occur at a time that is disadvantageous to Shareholders, such as when
the value of the investments that comprise the Index is lower than it was at the time when Shareholders purchased their Shares. In such
a case, the resulting proceeds distributed to Shareholders will be less than if the value of the investments that comprise the Index were
higher at the time of sale. See “Additional Information About the Trust—Description of the Trust Agreement—Termination
of the Trust” for more information about the termination of the Fund, including when the termination of the Fund may be triggered
by events outside the direct control of the Sponsor, the Trustee or the Shareholders.
The Trust Agreement
includes a provision that restricts the right of a beneficial owner of a statutory trust from bringing a derivative action.
Under Delaware law, the right
of a beneficial owner of a statutory trust (such as a Shareholder of the Fund) to bring a derivative action (i.e., to initiate a lawsuit
in the name of a the statutory trust in order to assert a claim belonging to the statutory trust against a fiduciary of the statutory
trust or against a third-party when the statutory trust’s management has refused to do so) may be restricted by the terms of the
governing instrument of the statutory trust. The Trust Agreement provides that in addition to any other requirements of applicable law,
no Shareholder shall have the right, power or authority to bring or maintain a derivative action, suit or other proceeding on behalf of
the Fund unless two or more Shareholders who (i) are not affiliates of one another and (ii) collectively hold at least 10% of
the outstanding Shares join in the bringing or maintaining of such action, suit or other proceeding. Therefore, the Trust Agreement limits
the likelihood that a Shareholder could successfully assert a derivative action.
The Administrator is
responsible for determining the value of the Fund’s assets, and any errors, discontinuance or changes in such valuation calculations
may have an adverse effect on the value of the Shares.
The Administrator will determine
the Fund’s NAV and NAV per Share on a daily basis as soon as practicable after 4:00 p.m. Eastern Time on each business day.
The Administrator’s determination is made utilizing data from the Non-Digital Custodian operations and the value of bitcoin as determined
by the Index, calculated at 4:00 p.m. Eastern Time on such day. To the extent that the Fund’s NAV or NAV per Share are incorrectly
calculated, the Administrator may not be liable for any error and such misreporting of valuation data could adversely affect an investment
in the Shares.
If the Fund incurs extraordinary
expenses in U.S. Dollars, the Fund will sell bitcoins and Carbon Credit Futures to pay these expenses. The sale of the Fund’s bitcoins
and Carbon Credit Futures to pay expenses at a time of low bitcoin prices or low Carbon Credit Future prices could adversely affect the
value of the Shares.
The Sponsor will sell bitcoins
and/or exposure to Carbon Credit Futures held by the Fund to pay Fund expenses not assumed by the Sponsor on an as-needed basis, irrespective
of then-current prices. The Fund is not actively managed and no attempt will be made to protect against or to take advantage of fluctuations
in the price of bitcoins and/or Carbon Credit Futures. Consequently, if the Fund incurs expenses in U.S. Dollars, the Fund’s bitcoins
and exposure to Carbon Credit Futures may be sold at a time when bitcoin prices and/or Carbon Credit Future prices are low, resulting
in a negative impact on the value of the Shares.
Intellectual property
rights claims may adversely affect the Fund and an investment in the Shares.
The Sponsor is not aware of
any intellectual property rights claims that may prevent the Fund from operating and holding bitcoins and/or carbon credit futures; however,
third parties may assert intellectual property rights claims relating to the operation of the Fund and the mechanics instituted for the
investment in carbon credit futures contracts and the investment in, holding of and transfer of bitcoins. Regardless of the merit of an
intellectual property or other legal action, any legal expenses to defend or payments to settle such claims would be Additional Fund Expenses
and be borne by the Fund. Additionally, a meritorious intellectual property rights claim could prevent the Fund from operating and force
the Sponsor to terminate the Fund and liquidate the Fund’s assets. As a result, an intellectual property rights claim against the
Fund could adversely affect an investment in the Shares.
The Fund is an “emerging
growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make
the Shares less attractive to investors.
The Fund is an “emerging
growth company” as defined in the JOBS Act. For as long as the Fund continues to be an emerging growth company it may choose to
take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to emerging public
companies, which include, among other things:
| ● | exemption from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act; |
| ● | reduced disclosure obligations regarding executive compensation in the Fund’s periodic reports and
audited financial statements in this prospectus; |
| ● | exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation
and shareholder advisory votes on “golden parachute” compensation; and |
| ● | exemption from any rules requiring mandatory audit firm rotation and auditor discussion and analysis and,
unless otherwise determined by the SEC, any new audit rules adopted by the Public Company Accounting Oversight Board. |
The Fund could be an emerging
growth company until the last day of the fiscal year following the fifth anniversary after its initial public offering, or until the earliest
of (1) the last day of the fiscal year in which it has annual gross revenue of $1.235 billion or more, (2) the date on which it has, during
the previous three year period, issued more than $1 billion in non-convertible debt or (3) the date on which it is deemed to be a large
accelerated filer under the federal securities laws. The Fund will qualify as a large accelerated filer as of the first day of the first
fiscal year after it has (A) more than $700 million in outstanding equity held by nonaffiliates, (B) been public for at least 12 months
and (C) filed at least one annual report on Form 10-K.
Under the JOBS Act, emerging
growth companies are also permitted to elect to delay adoption of new or revised accounting standards until companies that are not subject
to periodic reporting obligations are required to comply, if such accounting standards apply to non-reporting companies. However, the
Fund has chosen to opt out of this extended transition period for complying with new or revised accounting standards. Section 107 of the
JOBS Act provides that the decision to opt out of the extended transition period for complying with new or revised accounting standards
is irrevocable.
The Fund cannot predict if
investors will find an investment in the Fund less attractive if it relies on these exemptions.
If regulatory changes
or interpretations of an Authorized Purchaser’s activities require the regulation of an Authorized Purchaser as a money service
business under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act or as a money transmitter or virtual
currency business under state regimes for the licensing of such businesses, an Authorized Purchaser may be required to register and comply
with such regulations, which could result in extraordinary, recurring and/or nonrecurring expenses to the Authorized Purchaser or increased
commissions for the Authorized Purchaser’s clients, thereby reducing the liquidity of the Fund.
To the extent that the activities
of an Authorized Purchaser cause it to be deemed a “money services business” under the regulations promulgated by FinCEN under
the authority of the U.S. Bank Secrecy Act, an Authorized Purchaser may be required to comply with FinCEN regulations, including those
that would mandate an Authorized Purchaser to implement AML programs, make certain reports to FinCEN and maintain certain records. Similarly,
the activities of an Authorized Purchaser may require it to be licensed as a money transmitter or as a virtual currency business, such
as under NYDFS’s BitLicense scheme.
Such additional regulatory
obligations may cause the Authorized Purchaser to incur extraordinary expenses, possibly increasing the levels of the commissions that
an Authorized Purchaser charges its clients in a material and adverse manner. If an Authorized Purchaser determines not to comply with
such additional regulatory and registration requirements, an Authorized Purchaser may terminate its role as an Authorized Purchaser of
the Fund. Such a termination may decrease the liquidity of the Fund.
Additionally, to the extent
an Authorized Purchaser is found to have operated without appropriate state or federal licenses, it may be subject to investigation, administrative
or court proceedings, and civil or criminal monetary fines and penalties, all of which would harm the reputation of the Fund or its Sponsor,
decrease the liquidity of the Fund, and have a material adverse effect on the price of the Shares.
Banks may not provide
banking services, or may cut off banking services, to businesses that provide bitcoin-related services or that accept bitcoin as payment,
which could damage the public perception of bitcoin and the utility of bitcoin as a payment system and could decrease the price of bitcoin
and adversely affect the portion of the Shares’ value that is tied to bitcoin.
A number of companies that
provide bitcoin-related services have been unable to find banks that are willing to provide them with bank accounts and banking services.
Similarly, a number of such companies have had their existing bank accounts closed by their banks. Banks may refuse to provide bank accounts
and other banking services to bitcoin-related companies or companies that accept bitcoin for a number of reasons, such as perceived compliance
risks or costs. The difficulty that many businesses that provide bitcoin-related services have and may continue to have in finding banks
willing to provide them with bank accounts and other banking services may be currently decreasing the usefulness of bitcoin as a payment
system and harming public perception of bitcoin or could decrease its usefulness and harm its public perception in the future. Similarly,
the usefulness of bitcoin as a payment system and the public perception of bitcoin could be damaged if banks were to close the accounts
of many or of a few key businesses providing bitcoin-related services. This could decrease the price of bitcoins and therefore adversely
affect the portion of the Shares’ value that is tied to bitcoin.
It 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.
The U.S., China, Russia or
other jurisdictions may take regulatory actions in the future that severely restrict the right to acquire, own, hold, sell or use bitcoins
or to exchange bitcoins for fiat currency. Such an action may also result in the restriction of ownership, holding or trading in the Shares
due to their bitcoin component. Such a restriction could subject the Fund or its Sponsor to investigations, civil or criminal fines and
penalties, which could harm the reputation of the Fund or its Sponsor and could result in the termination and liquidation of the Fund
at a time that is disadvantageous to Shareholders or may adversely affect an investment in the Shares.
If regulatory changes
or interpretations of the Fund’s or Sponsor’s activities require registration as money service businesses under the regulations
promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act or as money transmitters or digital currency businesses under state
regimes for the licensing of such businesses, the Fund and/or Sponsor could suffer reputational harm and also extraordinary, recurring
and/or nonrecurring expenses, which would adversely impact an investment in the Shares.
If regulatory changes or interpretations
of the Fund’s or Sponsor’s activities require the registration of the Fund or Sponsor as a money services business under the
regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, the Fund or Sponsor may be required to register and
comply with such regulations. If regulatory changes or interpretations of the Fund’s or Sponsor’s activities require the licensing
or other registration as a money transmitter or business engaged in digital currency activity (e.g., under the New York BitLicense regime)
(or equivalent designation) under state law in any state in which the Fund or Sponsor operates, the Fund or Sponsor may be required to
seek licensure or otherwise register and comply with such state law. In the event of any such requirement, to the extent that the Sponsor
decides to continue the Fund, the required registrations, licensure and regulatory compliance steps may result in extraordinary, nonrecurring
expenses to the Fund. Regulatory compliance would include, among other things, implementing AML and consumer protection programs. The
Sponsor may also decide to terminate the Fund. Any termination of the Fund in response to the changed regulatory circumstances may be
at a time that is disadvantageous to Shareholders.
To the extent the Fund or
its Sponsor is found to have operated without appropriate state or federal licenses, it may be subject to investigation, administrative
or court proceedings, and civil or criminal monetary fines and penalties, all of which would harm the reputation of the Fund or its Sponsor,
decrease the liquidity of the Fund, and have a material adverse effect on the price of the Shares. If the Sponsor decides to comply with
such additional federal or state regulatory obligations and continue the Fund, the required registrations, licensure and regulatory compliance
steps may result in extraordinary, nonrecurring expenses to the Fund, possibly affecting an investment in the Shares in a material and
adverse manner. Furthermore, the Fund and its service providers may not be capable of complying with certain federal or state regulatory
obligations applicable to money service businesses’ money transmitters and businesses involved in digital currency business activity.
If the Sponsor determines not to comply with such requirements, the Sponsor will act to dissolve and liquidate the Fund. Any such termination
could result in the liquidation of the Fund’s bitcoins at a time that is disadvantageous to Shareholders.
The classification of
the Fund as a corporation for U.S. federal income tax purposes is relatively uncommon.
The Fund is classified as
a corporation for U.S. federal income tax purposes. This differs from many investment companies, which elect to be treated as “regulated
investment companies” under the Code in order to avoid U.S. federal income tax obligations at the entity level. Under current law,
the Fund is not eligible to elect treatment as a regulated investment company because the Fund’s investments consist primarily of
bitcoin. As a result, the Fund will be obligated to pay applicable U.S. federal and state corporate income taxes on its taxable income
unlike other investment companies which are not so obligated.
The U.S. federal income
tax treatment of transactions in digital assets is unclear.
Due
to the new and evolving nature of digital assets and the absence of comprehensive guidance with respect to digital assets, many significant
aspects of the U.S. federal income tax treatment of digital assets such as bitcoin are uncertain. Our dealings in or in connection with
digital assets, as well as transactions in digital assets generally, could be subject to adverse tax consequences in the U.S., including
as a result of development of the legal regimes surrounding digital assets, and our operating results, as well as the price of digital
assets, could be adversely affected thereby.
Many
significant aspects of the U.S. federal income tax treatment of digital assets (including with respect to the amount, timing and character
of income recognition) are uncertain. In 2014, the IRS released a notice (the “Notice”) discussing certain aspects of digital
assets for U.S. federal income tax purposes and, in particular, providing that such digital assets (1) are “property,” (2)
are not “currency” for purposes of the rules relating to foreign currency gain or loss and (3) may be held as a capital asset.
In 2019, the IRS released a revenue ruling and a set of “Frequently Asked Questions” (the “Ruling & FAQs”)
that provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of digital assets
are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of digital assets. The
Notice and the Ruling & FAQs, however, do not address other significant aspects of the U.S. federal income tax treatment of digital
assets. We do not intend to request a ruling from the IRS on these or any other issues, and we will take positions on these and other
U.S. federal income tax issues relating to digital assets that we believe to be reasonable. There can be no assurance that the IRS will
agree with the positions we take, and it is possible that the IRS will successfully challenge our positions.
There
can be no assurance that the IRS will not alter its position with respect to digital assets in the future or that a court would uphold
the treatment set forth in the Notice and the Ruling & FAQs. It is also unclear what additional guidance on the treatment of digital
assets for U.S. federal income tax purposes may be issued in the future. Any such alteration of the current IRS positions or additional
guidance could result in adverse tax consequences for us and could have an adverse effect on the value of bitcoin or other digital assets.
Because of the evolving nature of digital assets, it is not possible to predict potential future developments that may arise with respect
to digital assets. Such developments may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income
tax purposes. For example, the Notice addresses only digital assets that are “convertible virtual currency,” and it is conceivable
that we will hold certain types of digital assets that are not within the scope of the Notice.
On
November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the “IIJA”) into law. The IIJA implements
a set of comprehensive financial account information reporting rules that will apply to persons, including digital asset trading platforms
and custodians, that regularly effect transfers of digital assets on behalf of other persons. In particular, these rules will require
digital asset trading platforms and custodians to report digital asset transactions (including sales, exchanges and other transfers) effected
on behalf of other persons on an annual return, in a manner similar to the current reporting rules for brokers that effect stock and other
securities transactions on behalf of customers. The IRS issued proposed regulations on these rules on August 28, 2023. Under the proposed
regulations the gross proceeds of sales or exchanges of digital assets must be reported for transactions that take place on or after January
1, 2025, and, in certain circumstances, gain or loss with respect to such sales or exchanges must be reported for transactions that take
place on or after January 1, 2026.
These
rules, the effects of which may depend in significant part on regulations or other guidance from the IRS on their implementation, could
create significant compliance burdens for us and our investors, and could affect the price of digital assets, which could have an adverse
effect on our investments.
In addition, the Sponsor has
committed to cause the Fund to irrevocably abandon any Incidental Rights and IR Virtual Currency to which the Fund may become entitled
in the future. However, there can be no assurance that these abandonments would be treated as effective for U.S. federal income tax purposes,
or that the Sponsor will continue to cause the Fund to irrevocably abandon any Incidental Rights and IR Virtual Currency if there are
any future regulatory developments that would make it feasible for the Fund to retain those assets.
The state, local and
non-U.S. tax treatment of digital assets is unclear.
The
taxing authorities of certain states (i) have announced that they will follow the Notice with respect to the treatment of digital assets
for state income tax purposes and/or (ii) have issued guidance exempting the purchase and/or sale of digital assets for fiat currency
from state sales tax. It is unclear what further guidance on the treatment of digital assets for state tax purposes may be issued in the
future. Any future guidance on the treatment of digital assets for state or local tax purposes could result in adverse tax consequences
to us and could adversely affect the price of digital assets.
The
treatment of digital assets for tax purposes by non-U.S. jurisdictions may differ from the treatment of digital currency for U.S. federal,
state or local tax purposes. It is possible, for example, that a non-U.S. jurisdiction would impose sales tax or value-added tax on purchases
and sales of digital assets for fiat assets. For instance, if a foreign jurisdiction with a significant share of the market of bitcoin
users imposes onerous tax burdens on digital asset users or imposes sales or value-added tax on purchases and sales of digital assets
for fiat assets, such actions could result in decreased demand for digital currency in such jurisdiction, which could adversely affect
the price of digital assets.
Each
potential investor is urged to consult his, her or its own tax advisor regarding the tax treatment of digital assets and the tax consequences
of investing in the Fund.
Risks Related to Potential Conflicts of Interest
Potential conflicts
of interest may arise among the Sponsor or its affiliates and the Fund. The Trust Agreement modifies and restricts the default fiduciary
duties under the DSTA, which may permit them under state law to favor their own interests to the detriment of the Fund and its Shareholders.
That notwithstanding, the Sponsor is a registered investment adviser under the Advisers Act and is subject to fiduciary duties therewith.
The Sponsor will manage the
business and affairs of the Fund. Conflicts of interest may arise among the Sponsor and its affiliates, including Vinter, Solactive and
the Authorized Purchasers, on the one hand, and the Fund and its Shareholders, on the other hand. As a result of these conflicts, the
Sponsor may favor its own interests and the interests of its affiliates over the Fund and its Shareholders. These potential conflicts
include, among others, the following:
| ● | The Sponsor’s default fiduciary duties under the DSTA are modified and restricted pursuant to the
Trust Agreement in accordance with the DSTA, and is allowed to take into account the interests of parties other than, the Fund and its
Shareholders in resolving conflicts of interest; |
| ● | The Fund has agreed to indemnify the Sponsor and its affiliates pursuant to the Trust Agreement; |
| ● | The Sponsor is responsible for allocating its own limited resources among different clients and potential
future business ventures, to each of which it owes fiduciary duties; |
| ● | The Sponsor’s staff also services affiliates of the Sponsor and their respective clients and cannot
devote all of its, or their, respective time or resources to the management of the business and affairs of the Fund; |
| ● | The Sponsor, its affiliates and their officers and employees are not prohibited from engaging in other
businesses or activities, including those that might be in direct competition with the Fund; |
| ● | There is an absence of arm’s-length negotiation with respect to certain terms of the Fund, and,
where applicable, there has been no independent due diligence conducted with respect to this offering; |
| ● | The Sponsor decides whether to retain separate counsel, accountants or others to perform services for
the Fund; and |
| ● | The Sponsor may appoint an agent to act on behalf of the Shareholders, which may be the Sponsor or an
affiliate of the Sponsor. |
By investing in the Shares,
investors agree and consent to the provisions set forth in the Trust Agreement. That notwithstanding, the Sponsor is a registered investment
adviser under the Advisers Act and is subject to fiduciary duties in connection therewith. For a further discussion of the conflicts of
interest among the Sponsor, Authorized Purchasers, Vinter, Solactive, Bitcoin Custodian and/or Non-Digital Custodian, Fund and others,
see “Conflicts of Interest.”
Affiliates of the Sponsor
may invest in or trade bitcoin and/or carbon credit futures without regard to the interests of the Fund or its Shareholders.
Affiliates of the Sponsor
may have direct investments in bitcoins and/or invest in carbon credit futures contracts. Such affiliates of the Sponsor are permitted
to manage such investments, taking into account their own interests, without regard to the interests of the Fund or its Shareholders.
Affiliates of the Sponsor may obtain exposure to bitcoins and carbon credit futures through investment in the Shares.
To the extent that any substantial
investment in bitcoins and/or carbon credit futures contracts is initiated, materially increased or materially reduced, such investment
can affect the Bitcoin Price and/or value of the Carbon Credit Futures. The initiation of, or material increases in, a substantial investment
in bitcoins and/or carbon credit futures may result in an increase in the value of the Index. A material reduction in a substantial investment
may result in a decrease in the Bitcoin price and/or Carbon Credit Futures, having a negative impact on the value of Shares. See “Conflicts
of Interest—General.”
The Bitcoin Custodian
nor the Non-Digital Custodian owe any fiduciary duties to the Fund or the Shareholders, are not required to act in their best interest
and could resign or be removed by the Sponsor, which could trigger early termination of the Fund.
The Bitcoin Custodian nor
the Non-Digital Custodian is a trustee for, and owes no fiduciary duties to, the Fund or the Shareholders. In addition, the Custodians
have no duty to continue to act as a custodian of the Fund. Any of the Custodians can terminate its role as custodian for any reason whatsoever
upon the notice period provided under the respective Bitcoin Custody Agreement or Non-Digital Custody Agreement. The Custodians may also
be terminated. If one of the Custodians resigns or is removed without replacement, the Fund will dissolve in accordance with the terms
of the Trust Agreement.
The Custodians’
ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping of the Fund’s
assets.
While the Bitcoin Custodian
is required to safeguard the Bitcoin Assets from theft, loss, destruction or other issues relating to hackers and technological attack,
its ability to do so is based upon known technology and threats. As technological change occurs, the security threats to the Bitcoin Assets
will likely adapt and previously unknown threats may emerge. Furthermore, the Sponsor believes that the Fund may become a more appealing
target of security threats as the size of the Fund’s assets grows. To the extent that the Bitcoin Custodian is unable to identify
and mitigate or stop new security threats, the Bitcoin Assets may be subject to theft, loss, destruction or other attack, which could
have a negative impact on the performance of the Shares.
Shareholders may be
adversely affected by the lack of independent advisers representing investors in the Fund.
The Sponsor has consulted
with legal counsel, accountants and other advisers regarding the formation and operation of the Fund. No legal counsel has been appointed
to represent an investor in connection with the offering of the Shares. Accordingly, an investor should consult his, her or its own legal,
tax and financial advisers regarding the desirability of an investment in the Shares. Lack of such consultation may lead to an undesirable
investment decision with respect to investment in the Shares.
Shareholders may be
adversely affected by lack of regular shareholder meetings and no voting rights.
Under the Trust Agreement,
Shareholders have limited voting rights and the Fund will not have regular Shareholder meetings and take no part in the management or
control of the Fund. Accordingly, Shareholders do not have the right to authorize actions, appoint service providers or take other actions
as may be taken by shareholders of other trusts or companies where shares carry such rights. Shareholders may, however, remove and replace
the Sponsor by the affirmative vote of a majority of the outstanding Shares. The Shareholders’ limited voting rights, however, give
almost all control under the Trust Agreement to the Sponsor and the Trustee. The Sponsor may take actions in the operation of the Fund
that may be adverse to the interests of Shareholders. The Sponsor’s operation of the Fund could adversely affect an investment in
the Shares.
Investment
objective and investment strategy
Investment Objective
The Fund’s investment
objective is to reflect the price of bitcoin and the value of Carbon Credit Futures, as represented by the 7RCC Vinter Bitcoin Carbon
Credit Index, less expenses from the Fund’s operations. There can be no assurance that the Fund will achieve its investment objective
or that the Fund’s investment strategy will be successful.
Principal Investment Strategies
The Fund pursues its investment
objective by investing 80% of its assets in bitcoin and the remaining 20% of its assets in the Carbon Credit Futures that comprise the
Index. The Fund seeks these investments to reflect the price of bitcoin and Carbon Credit Futures, as represented in the Index. The Index
seeks to provide exposure to bitcoin with an environmentally responsible approach by offsetting carbon emissions, and is designed to track
the performance of investing in a portfolio comprised of 80% of bitcoin and 20% Carbon Credit Futures. The Index’s Carbon Credit
Futures are linked to the value of emissions allowances issued under the following cap-and-trade regimes: the European Union Emissions
Trading System (“EU ETS”), the California Carbon Allowance (“CCA”), and Regional Greenhouse Gas Initiative (“RGGI”).
Bitcoin Valuation
The value of bitcoin is determined
by the value that various market participants place on Bitcoin through their transactions. The most common means of determining the value
of a bitcoin is by surveying one or more digital asset trading platforms where bitcoin is traded publicly and transparently. On such digital
asset trading platforms, bitcoin is traded with publicly disclosed valuations for each executed trade, measured by one or more fiat currencies
such as the U.S. dollar. OTC dealers or market makers do not typically disclose their data. There are numerous exchanges operating worldwide,
representing a substantial percentage of bitcoin buying and selling activity, and providing the most data with respect to prevailing valuation
of bitcoin.
The Fund utilizes the same
methodology as that of the Index for determining the value of bitcoin for purposes of calculating the NAV of the Fund. The Index requires
each digital asset trading platform used to calculate the price of bitcoin to meet each of the following criteria:
| ● | has had operating history as a crypto asset exchange for a minimum of two years; |
| ● | implemented trading, deposits, and withdrawal fees for a minimum of one month without interruption; |
| ● | met a minimum monthly volume threshold of $30 million with respect to total trading volume; |
| ● | provided reliable, continuous, and valid market data for a minimum of one month; |
| ● | offered the possibility to withdraw and deposit for a minimum of one month, settling in 2-7 business days; |
| ● | chosen a jurisdiction of incorporation that offers sufficient investor protection, such as Financial Action
Task Force (FATF), FAFT-style regional bodies (FSRBs), or Moneyval member states; |
| ● | complied with relevant AML and know-your-customer (“KYC”) regulations; |
| ● | cooperated with requests from Vinter and relevant regulatory bodies; |
| ● | has not been domiciled in a jurisdiction subject to EU restrictive measures (sanctions) |
| ● | provided information concerning ownership and corporate structure; and |
| ● | has not been declared unlawful by any governmental authority or agency with jurisdiction over the exchange. |
Digital asset trading platforms
meeting these criteria are used to calculate the price of the bitcoin portion of the Index (the “Index Pricing Sources”).
The selection of Index Pricing Sources may evolve from time to time, and Vinter may make changes to the eligibility requirements. Vinter
reviews the eligibility of digital asset trading platforms for inclusion in the Index two times per year, and such platforms must meet
Vinter’s criteria at the time of such review. As of the date of this prospectus, the following exchanges are used to calculate the
Index price of bitcoin: Kraken, Coinbase, Bitstamp, itBit, Gemini, Gate.io, and Crypto.com.
Vinter reviews the spot price
on all eligible exchanges at 4:00 p.m. Eastern Time and values bitcoin as the median spot price amongst these exchanges. The Sponsor believes
this methodology provides a reasonable valuation of the spot price of bitcoin that is reasonably resistant to price manipulation of Bitcoin.
Carbon Credit Futures
Futures contracts are standardized
contracts that obligate the parties to buy or sell an asset at a predetermined price and date in the future. The Carbon Credit Futures
that comprise the sleeve of the Index are linked to the value of emissions allowances issued under the EU ETS, CCA and RGGI. Commodity
futures contracts linked to the value of emission allowances are known as “carbon credit futures”.
The Index is comprised of
futures contracts on emissions allowances issued by various “cap-and-trade” regulatory regimes that seek to reduce greenhouse
gas emissions over time. A cap-and-trade regime typically involves a regulator setting a limit on the total amount of specific greenhouse
gases (“GHG”) (such as CO2) that can be emitted by regulated entities. Capping and reducing the cap on GHGs is
viewed as a key policy tool in reaching climate change objectives. The regime is designed to promote sustainable development by putting
a price on carbon emissions. The regulator will then issue or sell “emissions allowances” to regulated entities, which in
turn may buy or sell the emissions allowances to the open market. To the extent that the regulator may then reduce the cap on emission
allowances, regulated entities are incentivized to reduce their emissions; otherwise, they must purchase additional emission allowances
on the open market, where the price of such allowances will likely be increasing as a result of demand, and regulated entities that reduce
their emissions will be able to sell unneeded emission allowances for profit. An emission allowance or carbon credit is a unit of emissions
(typically one ton of CO2) that the owner of the allowance or credit is permitted to emit. Futures contracts linked to the
value of emission allowances are known as “carbon credit futures”. Descriptions of each of the EU ETS, CCA and RGGI are below:
| ● | EU ETS: EU ETS cap-and-trade regime is a cornerstone of the EU’s policy to combat climate change
and is a key tool for reducing greenhouse gas emissions cost-effectively. It was the world’s first major carbon market and remains
among the largest. |
| ● | CCA: Carbon credits issued under the CCA cap-and-trade regime include carbon credits issued by Quebec
since the California and Quebec markets were linked pursuant to the Western Climate Initiative in 2014. Currently, carbon credits issued
by Quebec each year consist of approximately 17-18% of the carbon credits issued under the CCA cap-and-trade regime. This percentage is
subject to change and it is possible for additional markets to be added in the future. |
| ● | RGGI: The RGGI is a cooperative market-based effort among Connecticut, Delaware, Maine, Maryland, Massachusetts,
New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia to cap and reduce CO2 emissions from the power sector. RGGI was
the first cap-and-trade regional initiative implemented in the United States. |
The Fund will invest in the
Carbon Credit Futures that comprise the Index. Futures contracts are agreements between two parties that are executed on a designated
contract market (“DCM”), i.e., a commodity futures exchange, and that are cleared and margined through a derivatives
clearing organization (“DCO”), i.e., a clearing house. The Carbon Credit Futures are financially settled, which means
that one party agrees to buy a commodity such as bitcoin from the other party at a later date at a price and quantity agreed upon when
the contract is made, but instead of taking physical delivery of the commodity at such later date, settlement occurs in a dollar amount
that is equivalent to the amount agreed to in the contract. In market terminology, a party who purchases a futures contract is long in
the market and a party who sells a futures contract is short in the market. The contractual obligations of a buyer or seller may generally
be satisfied by financial settlement or by making an offsetting sale or purchase of an identical futures contract on the same or linked
exchange before the designated date of delivery. The difference between the price at which the futures contract is purchased or sold and
the price paid for the offsetting sale or purchase, after allowance for brokerage commissions, constitutes the profit or loss to the trader.
If the price of the underlying
asset increases after the original futures contract is entered into, the buyer of the futures contract will generally be able to sell
a futures contract to close out its original long position at a price higher than that at which the original contract was purchased, generally
resulting in a profit to the buyer. Conversely, the seller of a futures contract will generally profit if the price of the underlying
asset decreases, as it will generally be able to buy a futures contract to close out its original short position at a price lower than
that at which the original contract was sold. Because the Fund seeks to track the Index, the Fund intends to hold only long positions
in Carbon Credit Futures and intends to roll its Carbon Credit Futures prior to expiration via sales of existing long positions and the
acquisition of new long positions as replacements for contracts sold. Futures contracts are typically traded on futures exchanges (i.e.,
DCMs) which provide centralized market facilities in which multiple persons may trade contracts. Members of a particular futures exchange
and the trades executed on such exchange are subject to the rules of that exchange. Futures exchanges and their related clearing organizations
(i.e., DCOs) are given reasonable latitude in promulgating rules and regulations to control and regulate their members.
Trades on a futures exchange
are generally cleared by the DCO, which provides services designed to mutualize or transfer the credit risk arising from the trading of
contracts on an exchange. The clearing organization effectively becomes the other party to the trade, and each clearing member party to
the trade looks only to the clearing organization for performance. The Carbon Credit Futures are cash-settled, and the Fund will not be
required to take physical delivery. Positions may also be closed out to meet orders for redemption Baskets, in which case the proceeds
from closing a particular position or positions will not be reinvested.
Position Limits, Accountability
Levels, and Dynamic Price Fluctuation Limits may potentially cause a tracking error between the price of the Shares and the Index. The
Fund does not intend to limit the size of the offering and will attempt to invest in Carbon Credit Futures and cash and cash equivalents
to the extent necessary to replicate the exposure of the Index. If the Fund encounters position limits, accountability levels, or price
fluctuation limits for Carbon Credit Futures, it could force the Fund to limit the number of Baskets that it sells.
Over time, the price of carbon
credits fluctuates based on a number of market factors, including demand. The value of Carbon Credit Futures likewise fluctuates in reaction
to a number of market factors. Because the Fund seeks to maintain its holdings in Carbon Credit Futures, the Fund must periodically “roll”
futures contract positions, closing out soon to expire contracts that will no longer be part of the Index and entering into subsequent
to expire contracts. One factor determining the total return from investing in futures contracts is the price relationship between soon
to expire contracts and later to expire contracts.
If the futures market is in
a state of backwardation, the Fund will buy later to expire contracts for a lower price than the sooner to expire contracts that it sells.
Hypothetically, and assuming no changes to either the underlying asset or the price relationship between soon to expire contracts and
later to expire contracts, the value of a contract will rise as it approaches expiration. Over time, if backwardation remained constant,
the differences would continue to increase. If the futures market is in contango, the Fund will buy later to expire contracts for a higher
price than the sooner to expire contracts that it sells. Hypothetically, and assuming no other changes to either the underlying asset
or the price relationship between the asset, soon to expire contracts and later to expire contracts, the value of a contract will fall
as it approaches expiration. Over time, if contango remained constant, the difference would continue to increase. All other things being
equal, a situation involving prolonged periods of contango may adversely impact the returns of the Fund; conversely a situation involving
prolonged periods of backwardation may positively impact the returns of the Fund.
The Fund is required to post
margin with respect to its investment in Carbon Credit Futures. “Initial margin” is an amount of funds that must be deposited
to initiate an open position in futures contracts. A margin deposit is like a cash performance bond. It helps assure the trader’s
performance of the futures contracts that he or she purchases or sells. Futures contracts are customarily bought and sold on an initial
margin that represents a small percentage of the aggregate purchase or sales price of the contract. The amount of margin required in connection
with a particular futures contract is set by the exchange on which the contract is traded.
Futures contracts are marked
to market at the end of each trading day and the margin required with respect to such contracts is adjusted accordingly. This process
of marking to market is designed to prevent losses from accumulating in any futures account. Therefore, if the Fund’s futures positions
have declined in value, the Fund may be required to post “variation margin” to cover this decline. Alternatively, if the Fund’s
futures positions have increased in value, this increase will be credited to the Fund’s account.
The Fund seeks to have the
aggregate “notional” amount of the Carbon Credit Futures mirror the exposure of the Index. At any given time, however, most
of the Fund’s investments with respect to the Carbon Credit Futures are in cash and cash equivalents that support the Fund’s
position in the Carbon Credit Futures. To secure its position in the Carbon Credit Futures, the Fund will deposit the required margin
with the FCM and will separately hold its remaining assets through its Non-Digital Custodian in cash and cash equivalents, which specifically
include: (a) cash; (b) debt securities issued or directly or indirectly fully guaranteed or insured by the United States or any agency
or instrumentality thereof (such as U.S. Treasury Bills); (c) commercial paper or finance company paper of sufficient credit quality in
the view of the Sponsor; or (d) money market mutual funds. Additionally, the Fund will implement foreign exchange dollarization using
spot market or foreign exchange forwards and customary foreign exchange hedging instruments. Such remaining assets may be used to meet
future margin payments that the Fund is required to make on its Carbon Credit Futures. The Fund earns interest and other income from the
cash equivalents that it purchases, and on the cash, it holds through the Non-Digital Custodian or other financial institutions. The earned
interest and other income increase the Fund’s NAV. The Fund applies the earned interest and other income to the acquisition of additional
investments or uses it to pay its expenses. When the Fund reinvests the earned interest and other income, it makes investments that are
consistent with its investment objectives.
The Index
The Index provides
exposure to the daily price performance of bitcoin and Carbon Credit Futures by aiming to track the financial performance of
investing in a portfolio of 80% bitcoin and 20% Carbon Credit Futures. In providing this exposure, the Index seeks to provide
exposure to bitcoin with an environmentally responsible approach through offsetting carbon emissions. Vinter is the benchmark
administrator for the bitcoin portion of the Index. Vinter is also the central recipient of input data and evaluates the integrity
and accuracy of the input data. Solactive is the benchmark administrator for the Carbon Credit Futures portion of the Index and
calculates the value of the Carbon Credit Futures portion of the Index as well as the value of the overall Index. Bitcoin is valued
in accordance with the procedures outlined above in “Investment Objective and Investment Strategy—Principal Investment
Strategies—Bitcoin Valuation”.
80% of the value of the Index
is in bitcoin with the remaining 20% providing exposure to Carbon Credit Futures. The Carbon Credit Futures portion of the Index is built
using a combination of three carbon credit indices, each of which is calculated and administered by Solactive: the Solactive Carbon European
Union Allowance Futures ER Index, Solactive California Carbon Rolling Futures ER Index, and the Solactive Futures Series Regional Greenhouse
Gas Rolling Futures Index. The combination of exposure to the three underlying indices provides the Index with returns tied to futures
contracts on carbon credits connected to EU ETS, CCA and RGGI. The Index includes only Carbon Credit Futures that mature in December of
the next one to two years. Specifically, the Index includes front-month futures contracts that are rolled each month. The Index rolls
over five business days into the new contract, with an expiration of December of the next calendar year. The Index does not equally weight
its exposure to EU ETS, CCA and RGGI. Rather it seeks exposure to the reference carbon credits proportional to the trading volume over
the last six months.
The Index rebalances quarterly
starting at the end of January. Index data and the description of the Index are based on information made publicly available by the Benchmark
Administrator. None of the information on the Benchmark Administrator’s website is incorporated by reference into this prospectus.
OVERVIEW
OF THE BITCOIN INDUSTRY AND MARKET
This section of the prospectus
provides a more detailed description of bitcoin, including information about the historical development of bitcoin, how a person holds
bitcoin, how to use bitcoin in transactions, how to trade bitcoin, the “exchange” market where bitcoin can be bought, held
and sold, the bitcoin over-the-counter (“OTC”) trading market and bitcoin mining. In this prospectus, Bitcoin with an upper-case
“B” is used to describe the system as a whole that is involved in maintaining the ledger of bitcoin ownership and facilitating
the transfer of bitcoin among parties. When referring to the digital asset within the Bitcoin Network, bitcoin is written with a lower-case
“b” (except, of course, at the beginning of sentences or paragraph sections, as below).
Bitcoin
Bitcoin is the digital asset
that is native to, and created and transmitted through the operations of, the peer-to-peer Bitcoin Network, a decentralized network of
computers that operates on cryptographic protocols. No single entity owns or operates the Bitcoin Network, the infrastructure of which
is collectively maintained by a decentralized user base. The Bitcoin Network allows people to exchange tokens of value, called bitcoin,
which are recorded on a public transaction ledger known as the Blockchain. Bitcoin can be used to pay for goods and services, or it can
be converted to fiat currencies, such as the U.S. dollar, at rates determined on digital asset trading platforms or in individual end-user-to-end-user
transactions under a barter system. Although nascent in use, bitcoin may be used as a medium of exchange, unit of account or store of
value.
The Bitcoin Network is decentralized
and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of bitcoin.
In addition, no party may easily censor transactions on the Bitcoin Network. As a result, the Bitcoin Network is often referred to as
decentralized and censorship resistant.
The value of bitcoin is determined
by the supply of and demand for bitcoin. New bitcoin are created and rewarded to the parties providing the Bitcoin Network’s infrastructure
(“miners”) in exchange for expending computational power to verify transactions and add them to the Blockchain. The Blockchain
is effectively a decentralized database that includes all blocks that have been solved by miners and it is updated to include new blocks
as they are solved. Each bitcoin transaction is broadcast to the Bitcoin Network and, when included in a block, recorded in the Blockchain.
As each new block records outstanding bitcoin transactions, and outstanding transactions are settled and validated through such recording,
the Blockchain represents a complete, transparent and unbroken history of all transactions of the Bitcoin Network.
Bitcoin Network
Bitcoin was first described
in a white paper released in 2008 and published under the pseudonym “Satoshi Nakamoto.” The protocol underlying Bitcoin was
subsequently released in 2009 as open-source software and currently operates on a worldwide network of computers. The Bitcoin Network
and its software have been under active development since that time by a group of computer engineers known as “core developers,”
each of whom operates under a volunteer basis and without strict hierarchical administration.
The Bitcoin Network utilizes
a digital asset known as “bitcoin,” which can be transferred among parties via the Internet. Unlike other means of electronic
payments such as credit card transactions, one of the advantages of bitcoin is that it can be transferred without the use of a central
administrator or clearing agency. As a central party is not necessary to administer bitcoin transactions or maintain the bitcoin ledger,
the term decentralized is often used in descriptions of bitcoin. Unless it is using a third-party service provider, a party transacting
in bitcoin is generally not afforded some of the protections that may be offered by intermediaries.
The first step in directly
using the Bitcoin Network for transactions is to download specialized software referred to as a “bitcoin wallet.” A user’s
bitcoin wallet can run on a computer or smartphone, and can be used both to send and to receive bitcoin. Within a bitcoin wallet, a user
can generate one or more unique “bitcoin addresses,” which are conceptually similar to bank account numbers. After establishing
a bitcoin address, a user can send or receive bitcoin from his or her bitcoin address to another user’s bitcoin address. Sending
bitcoin from one bitcoin address to another is similar in concept to sending a bank wire from one person’s bank account to another
person’s bank account; however, such transactions are not managed by an intermediary and erroneous transactions generally may not
be reversed or remedied once sent.
The amount of bitcoin associated
with each bitcoin address, as well as each bitcoin transaction to or from such bitcoin address, is transparently reflected in the Blockchain
and can be viewed by websites that operate as “blockchain explorers.” Copies of the Blockchain exist on thousands of computers
on the Bitcoin Network throughout the Internet. A user’s bitcoin wallet will either contain a copy of the blockchain or be able
to connect with another computer that holds a copy of the blockchain. The innovative design of the Bitcoin Network protocol allows each
bitcoin user to trust that their copy of the Blockchain will generally be updated consistent with each other user’s copy.
When a bitcoin user wishes
to transfer bitcoin to another user, the sender must first request a Bitcoin address from the recipient. The sender then uses his or her
Bitcoin wallet software to create a proposed transaction that is confirmed and settled when included in the Blockchain. The transaction
would reduce the amount of bitcoin allocated to the sender’s bitcoin address and increase the amount allocated to the recipient’s
bitcoin address, in each case by the amount of bitcoin desired to be transferred. The transaction is completely digital in nature, similar
to a file on a computer, and it can be sent to other computers participating in the Bitcoin Network; however, the use of cryptographic
verification is believed to prevent the ability to duplicate or counterfeit bitcoin.
Bitcoin Protocol
The Bitcoin protocol is built
using open-source software, meaning any developer can review the underlying code and suggest changes. There is no official company or
group that is responsible for making modifications to Bitcoin. There are, however, a number of individual developers that regularly contribute
to a specific distribution of Bitcoin software known as the “Bitcoin Core,” which is maintained in an open-source repository
on the website Github. There are many other compatible versions of Bitcoin software, but Bitcoin Core provides the de-facto standard for
the Bitcoin protocol, also known as the “reference software.” The core developers for Bitcoin Core operate under a volunteer
basis and without strict hierarchical administration.
Significant changes to the
Bitcoin protocol are typically accomplished through a so-called “Bitcoin Improvement Proposal” or “BIP.” Such
proposals are generally posted on websites, and the proposals explain technical requirements for the protocol change as well as reasons
why the change should be accepted. Upon its inclusion in the most recent version of Bitcoin Core, a new BIP becomes part of the reference
software’s Bitcoin protocol. Several BIPs have been implemented since 2011 and have provided various new features and scaling improvements.
Because Bitcoin has no central
authority, updating the reference software’s Bitcoin protocol will not immediately change the Bitcoin Network’s operations.
Instead, the implementation of a change is achieved by users and transaction validators (known as “miners”) downloading and
running updated versions of Bitcoin Core or other Bitcoin software that abides by the new Bitcoin protocol. Users and miners must accept
any changes made to the Bitcoin source code by downloading a version of their Bitcoin software that incorporates the proposed modification
of the Bitcoin Network’s source code. A modification of the Bitcoin Network’s source code is only effective with respect to
those bitcoin users and miners who download it. If an incompatible modification is accepted by a less than overwhelming percentage of
users and miners, a division in the Bitcoin Network will occur such that one network will run the pre-modification source code and the
other network will run the modified source code. Such a division is known as a “fork” in the Bitcoin Network.
Such a fork in the Bitcoin
Network occurred on August 1, 2017, when a group of developers and miners accepted certain changes to the Bitcoin Network software intended
to increase transaction capacity. Blocks mined on this network now diverge from blocks mined on the Bitcoin Network, which has resulted
in the creation of a new blockchain whose digital asset is referred to as “bitcoin cash.” Bitcoin and Bitcoin Cash now operate
as separate, independent networks, and have distinct related assets (bitcoin and bitcoin cash). Additional forks have followed the Bitcoin
Cash fork, including those for Bitcoin Gold (October 24, 2017) and Bitcoin SegWit2X (December 28, 2017), in the months after the creation
of Bitcoin Cash. It is possible that additional “forks” will occur in the future.
Recent developments on the
Bitcoin Network has enabled some functionality other than the transfer of value on the Blockchain. Following the recent activation of
“Segregated Witness” on the Bitcoin Network, an alpha version of the Lightning Network was released. The “Lightning
Network” is an open-source decentralized network that enables instant off-blockchain transfers of the ownership of bitcoin without
the need of a trusted third party. In 2021, the Bitcoin protocol implemented the Taproot upgrade to add enhanced support for complex transactions
on the network such as multi-signature transactions, which require two or more parties to execute a transaction on the Bitcoin Network.
Other efforts include increased use of smart contracts and distributed registers built into, built atop or pegged alongside the Blockchain.
The Fund’s activities will not directly relate to such projects, though such projects may utilize bitcoin as tokens for the facilitation
of their non-financial uses, thereby potentially increasing the utility of the Bitcoin Network as a whole. Conversely, projects that operate
and are built within the Blockchain may increase the data flow on the Bitcoin Network and could either “bloat” the size of
the Blockchain or slow confirmation times. At this time, such projects remain in early stages.
Bitcoin Transactions
A bitcoin transaction is similar
in concept to an irreversible digital check. The transaction contains the sender’s bitcoin address, the recipient’s bitcoin
address, the amount of bitcoin to be sent, a transaction fee and the sender’s digital signature. Bitcoin transactions are secured
by cryptography known as public-private key cryptography, represented by the bitcoin addresses and digital signature in a transaction’s
data file. Each Bitcoin Network address, or “wallet,” is associated with a unique “public key” and “private
key” pair, both of which are lengthy alphanumeric codes, derived together and possessing a unique relationship.
The use of key pairs is a
cornerstone of the Bitcoin Network technology. This is because the use of a private key is the only mechanism by which a bitcoin transaction
can be signed. If a private key is lost, the corresponding bitcoin is thereafter permanently non-transferable. Moreover, the theft of
a private key provides the thief immediate and unfettered access to the corresponding bitcoin. Bitcoin users must therefore understand
that in this regard, bitcoin is similar to cash: that is, the person or entity in control of the private key corresponding to a particular
quantity of bitcoin has de facto control of the bitcoin. For large quantities of bitcoin, holders often embrace sophisticated security
measures. For a discussion of how the Fund secures its bitcoin, see “Custody of the Fund’s Assets—The Bitcoin Custodian”
below.
The public key is visible
to the public and analogous to the Bitcoin Network address. The private key is a secret and is used to digitally sign a transaction in
a way that proves the transaction has been signed by the holder of the public-private key pair, without having to reveal the private key.
A user’s private key must be kept safe in accordance with appropriate controls and procedures to ensure it is used only for legitimate
and intended transactions. If an unauthorized third person learns of a user’s private key, that third person could apply the user’s
digital signature without authorization and send the user’s bitcoin to their or another bitcoin address, thereby stealing the user’s
bitcoin. Similarly, if a user loses his private key and cannot restore such access (e.g., through a backup), the user may permanently
lose access to the bitcoin associated with that private key and bitcoin address.
To prevent the possibility
of double-spending bitcoin, each validated transaction is recorded, time stamped and publicly displayed in a “block” in the
Blockchain, which is publicly available. Thus, the Bitcoin Network provides confirmation against double-spending by memorializing every
transaction in the Blockchain, which is publicly accessible and downloaded in part or in whole by all users of the Bitcoin Network software
program. Any user may validate, through their Bitcoin wallet or a blockchain explorer, that each transaction in the Bitcoin Network was
authorized by the holder of the applicable private key, and Bitcoin Network mining software consistent with reference software requirements
validates each such transaction before including it in the Blockchain. This cryptographic security ensures that bitcoin transactions may
not generally be counterfeited, although it does not protect against the “real world” theft or coercion of use of a bitcoin
user’s private key, including the hacking of a bitcoin user’s computer or a service provider’s systems.
A bitcoin transaction between
two parties is recorded if such transaction is included in a valid block added to the Blockchain. A block is accepted as valid through
consensus formation among Bitcoin Network participants. Validation of a block is achieved by confirming the cryptographic hash value included
in the block’s data and by the block’s addition to the longest confirmed blockchain on the Bitcoin Network. For a transaction,
inclusion in a block on the Blockchain constitutes a “confirmation” of validity. As each block contains a reference to the
immediately preceding block, additional blocks appended to and incorporated into the Blockchain constitute additional confirmations of
the transactions in such prior blocks, and a transaction included in a block for the first time is confirmed once against double-spending.
This layered confirmation process makes changing historical blocks (and reversing transactions) exponentially more difficult the further
back one goes in the Blockchain.
To undo past transactions
in a block recorded on the Blockchain, a malicious actor would have to exert tremendous hashrate in re-solving each block in the Blockchain
starting with and after the target block and broadcasting all such blocks to the Bitcoin Network. The Bitcoin Network is generally programmed
to consider the longest Blockchain containing solved and valid blocks to be the most accurate Blockchain. In order to undo multiple layers
of confirmation and alter the Blockchain, a malicious actor must re-solve all of the old blocks sought to be regenerated and be able to
continuously add new blocks to the Blockchain at a speed that would have to outpace that of all of the other miners on the Bitcoin Network,
who would be continuously solving for and adding new blocks to the Blockchain.
If a malicious actor is able
to amass ten percent (10%) of the Bitcoin Network’s aggregate hashrate, there is estimated to be a 0.1 percent chance that it would
be able to overcome six (6) confirmations. Therefore, given the difficulty in amassing such hashrate, six (6) confirmations is an often-cited
standard for the validity of transactions. The Fund has adopted a policy whereby a transaction will be deemed confirmed upon this industry
standard of six (6) confirmations (the “Confirmation Protocol”). As one (1) block is added to the Blockchain approximately
every six (6) to twelve (12) minutes, a Bitcoin transaction will be, on average, confirmed using the Confirmation Protocol beyond a reasonable
doubt in approximately one (1) hour. Merchants selling high-value goods and services, as well as Bitcoin Platforms and many experienced
users, are believed to generally use the six (6) confirmations standard. This confirmation system, however, does not mean that merchants
must always wait for multiple confirmations for transactions involving low-value goods and services. As discussed below, the value of
a successful double-spending attack involving a low-value transaction may, and perhaps likely will, be significantly less than the cost
involved in arranging and executing such double-spending attacks. Furthermore, merchants engaging in low-value transactions may then view
the reward of quicker transaction settlements with limited or no Blockchain confirmation as greater than the related risk of not waiting
for six (6) confirmations with respect to low-value transactions at points of sale. Conversely, for high-value transactions that are not
time sensitive, additional settlement security can be provided by waiting for more than six (6) confirmations.
Bitcoin Mining – Creation of New Bitcoins
Mining Process
The process by which bitcoin
are created and bitcoin transactions are verified is called “mining.” To begin mining, a user, or “miner,” can
download and run a mining “client,” which, like regular Bitcoin Network software programs, turns the user’s computer
into a “node” on the Bitcoin Network that validates blocks, and, in this case, gives such user the ability to validate transactions
and add new blocks of transactions to the Blockchain.
Miners, through the use of
the bitcoin software program, engage in a set of prescribed complex mathematical calculations in order to verify transactions and compete
for the right to add a block of verified transactions to the Blockchain and thereby confirm bitcoin transactions included in that block’s
data. The miner who successfully “solves” the complex mathematical calculations has the right to add a block of transactions
to the Blockchain and is then rewarded with new bitcoin, the amount of which is determined by the Bitcoin protocol, plus any transaction
fees paid for the transactions included in such block.
Confirmed and validated bitcoin
transactions are recorded in blocks added to the Blockchain. Each block contains the details of some or all of the most recent transactions
that are not memorialized in prior blocks, as well as a record of the award of bitcoin to the miner who added the new block. Each unique
block can only be solved and added to the Blockchain by one miner; therefore, all individual miners and mining pools on the Bitcoin Network
are engaged in a competitive process of constantly increasing their computing power to improve their likelihood of solving for new blocks.
As more miners join the Bitcoin Network and its processing power increases, the Bitcoin Network adjusts the complexity of the block-solving
equation to maintain a predetermined pace of adding a new block to the Blockchain approximately every ten minutes.
Mathematically Controlled Supply
The method for creating new
bitcoin is mathematically controlled in a manner so that the supply of bitcoin grows at a limited rate pursuant to a pre-set schedule.
The number of bitcoin awarded for solving a new block is automatically halved every 210,000 blocks. Thus, the current fixed reward for
solving a new block is 6.25 bitcoin per block; the reward decreased from twenty-five (25) bitcoin in July 2016 and 12.5 in May 2020. The
most recent halving occurred in April 2024 and the next estimated halving is expected to occur in 2028. This deliberately controlled rate
of bitcoin creation means that the number of bitcoin in existence will never exceed twenty-one million (21,000,000) and that bitcoin cannot
be devalued through excessive production unless the Bitcoin Network’s source code (and the underlying protocol for bitcoin issuance)
is altered. As of August 2024, approximately 19.7 million bitcoin are outstanding. The date when the 21 million bitcoin limitation will
be reached is estimated to be the year 2140.
Forms of Attack Against the Bitcoin Network
All networked systems are
vulnerable to various kinds of attacks. As with any computer network, the Bitcoin Network contains certain flaws. For example, the Bitcoin
Network is currently vulnerable to a “51% attack” where, if a mining pool were to gain control of more than 50% of the hash
rate for a digital asset, a malicious actor would be able to gain full control of the network and the ability to manipulate the Blockchain.
In addition, many digital
asset networks have been subjected to a number of denial-of-service attacks, which has led to temporary delays in block creation and in
the transfer of bitcoin. Any similar attacks on the Bitcoin Network that impact the ability to transfer bitcoin could have a material
adverse effect on the price of bitcoin and the value of the Shares.
Bitcoin Market and Bitcoin Trading Platforms
In addition to using bitcoin
to engage in transactions, investors may purchase and sell bitcoin to speculate as to the value of bitcoin in the bitcoin market, or as
a long-term investment to diversify their portfolio. The value of bitcoin within the market is determined, in part, by: (i) the supply
of and demand for bitcoin in the bitcoin market; (ii) market expectations for the expansion of investor interest in bitcoin and the adoption
of bitcoin by individuals; (iii), the number of merchants that accept bitcoin as a form of payment; and (iv) the volume of private end-user-to-end-user
transactions.
Although the value of bitcoin
is determined by the value that two transacting market participants place on bitcoin through their transaction, the most common means
of determining a reference value is by surveying one or more trading platforms where secondary markets for bitcoin exist. The most prominent
digital asset trading platforms are often referred to as “exchanges,” although they neither report trade information nor are
they regulated in the same way as a national securities exchange. As such, there is some difference in the form, transparency and reliability
of trading data from digital asset trading platforms. Generally speaking, bitcoin data is available from these trading platforms with
publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the U.S. dollar or Euro or another
digital asset such as ether. OTC dealers or market makers do not typically disclose their trade data.
Currently, there are many
digital asset trading platforms operating worldwide and trading platforms represent a substantial percentage of bitcoin buying and selling
activity and, therefore, provide large data sets for market valuation of bitcoin. A digital asset trading platform provides investors
with a way to purchase and sell bitcoin, similar to stock exchanges like the New York Stock Exchange or Nasdaq, which provide ways for
investors to buy stocks and bonds in the “secondary market.” Unlike stock exchanges, which are regulated to monitor securities
trading activity, digital asset trading platforms are largely regulated as money services businesses (or a foreign regulatory equivalent)
and are required to monitor for and detect money-laundering and other illicit financing activities that may take place on the platform.
Digital asset trading platforms operate websites designed to permit investors to open accounts with the trading platform and then purchase
and sell bitcoin.
As with conventional stock
exchanges, an investor opening a trading account and wishing to transact at a digital asset trading platform must deposit an accepted
government-issued currency into their account, or a previously acquired digital asset. The process of establishing an account with a digital
asset trading platform and trading bitcoin is different from, and should not be confused with, the process of users sending bitcoin from
one bitcoin address to another bitcoin address, such as to pay for goods and services. This latter process is an activity that occurs
wholly within the confines of the Bitcoin network, while the former is an activity that occurs largely on private websites and databases
owned by the digital asset trading platform.
Although bitcoin was the first
cryptocurrency, since 2009, the number of digital assets, market participants and companies in the space has increased dramatically. In
addition to bitcoin, other well-known digital assets include ether, bitcoin cash and litecoin. The digital asset marketplace is still
being defined and evolving, including the practices of exchanges, behavior of investors, and the protocols and prominence of particular
digital assets. Prior to 2017, Bitcoin accounted for approximately 85% or more of the total market capitalization of all digital assets.
Authorized Purchasers will
have the option of purchasing and selling bitcoin used in Creation Basket transactions with the Fund either on bitcoin trading platforms,
in the OTC markets or in direct bilateral transactions. OTC trading and direct transactions of bitcoin are generally accomplished via
bilateral agreements on a principal-to-principal basis. All risks and issues related to creditworthiness are between the parties directly
involved in the transaction.
Market Participants
Miners
Miners range from bitcoin
enthusiasts to professional mining operations that design and build dedicated machines and data centers, but the vast majority is now
undertaken by parties with access to high grade hardware, favorable electric prices, and industrial data centers. In addition, most mining
hashrate is directed by participants in mining pools, which are groups of miners that act cohesively and combine their processing to solve
blocks. When a pool adds a new block to the Blockchain, the pool operator receives the new bitcoin and, after taking a nominal fee, splits
the resulting reward among the pool participants based on the processing power each of them contributed to solve for such block. Mining
pools provide participants with access to smaller, but steadier and more frequent, bitcoin payouts.
Investment and Speculative Sector
This sector includes the investment
and trading activities of both private and professional investors and speculators. These participants range from exchange-traded products,
hedge funds and day-traders who invest in bitcoin by trading on digital asset trading platforms. Historically, larger financial services
institutions are publicly reported to have limited involvement in investment and trading in digital assets, although the participation
landscape is beginning to change and large corporations, financial institutions and investment firms are taking positions providing exposure
to bitcoin and other digital assets.
Retail Sector
The retail sector includes
users transacting in direct peer-to-peer Bitcoin transactions through the direct sending of bitcoin over the Bitcoin Network. The retail
sector also includes transactions in which consumers pay for goods or services from commercial or service businesses through direct transactions
or third-party service providers, such as BitPay, which provides a merchant platform for instantaneous transactions whereby the consumer
sends bitcoin to BitPay, which then provides either the bitcoin or the cash value thereof to the commercial or service business utilizing
the platform. PayPal, Square and Shopify are examples of traditional merchant payment processors or merchant platforms that have also
added Bitcoin payment options for their merchant customers. Payment processing through the Bitcoin Network may reduce the transaction
cost for merchants, relative to the costs paid for credit card transaction processing, and eliminates the potential for consumer chargebacks.
Service Sector
This sector includes companies
that provide a variety of services including the buying, selling, payment processing and storing of bitcoin. Coinbase and Fidelity are
examples of multi-service financial institutions that provide wallets that store bitcoin for users and also serve as a retail or exchange
gateway whereby users can purchase bitcoin for fiat currency. BitPay is an example of Bitcoin payment processors that allow merchants
to accept bitcoin as payment. As the Bitcoin Network continues to grow in acceptance, it is anticipated that service providers will expand
the currently available range of services and that additional parties will enter the service sector for the Bitcoin Network.
Competition
More than 20,000 other digital
assets have been developed since the inception of Bitcoin, currently the most developed digital asset because of the length of time it
has been in existence, the investment in the infrastructure that supports it, and the network of individuals and entities that are using
Bitcoin. Some industry groups are also creating private, permissioned blockchains that may or may not feature cryptocurrencies or other
digital assets. In addition, private enterprises and governments are exploring the use of stablecoins including central bank digital currencies.
Regulation of Bitcoin
As
bitcoin and digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies
(including Financial Crimes Enforcement Network (“FinCen”), SEC, OCC, CFTC,
FINRA, the Consumer Financial Protection Bureau (“CFPB”), the Department of Justice, the Department of Homeland Security,
the Federal Bureau of Investigation, the IRS, state financial institution regulators, and others) have been examining the operations of
digital asset networks, digital asset users and the digital asset exchange market. Many of these state and federal agencies have brought
enforcement actions and issued advisories and rules relating to digital asset markets. Ongoing and future regulatory actions with respect
to digital assets generally or any single digital asset in particular may alter, perhaps to a materially adverse extent, the nature of
an investment in the Shares and/or the ability of the Fund to continue to operate.
For
example, the events of 2022, including among others the bankruptcy filings of FTX and its subsidiaries, Three Arrows Capital, Celsius
Network, Voyager Digital, Genesis, BlockFi and others, and other developments in the digital asset markets, have resulted in calls for
heightened scrutiny and regulation of the digital asset industry, with a specific focus on intermediaries such as digital asset exchanges,
platforms, and custodians. Federal and state legislatures and regulatory agencies may introduce and enact new laws and regulations to
regulate crypto asset intermediaries, such as digital asset exchanges and custodians. The March 2023 collapses of Silicon Valley Bank,
Silvergate Bank, and Signature Bank, which in some cases provided services to the digital assets industry, or similar future events, may
amplify and/or accelerate these trends. On January 3, 2023, the federal banking agencies issued a joint statement on crypto-asset risks
to banking organizations following events which exposed vulnerabilities in the crypto-asset sector, including the risk of fraud and scams,
legal uncertainties, significant volatility, and contagion risk. Although banking organizations are not prohibited from crypto-asset related
activities, the agencies have expressed significant safety and soundness concerns with business models that are concentrated in crypto-asset
related activities or have concentrated exposures to the crypto-asset sector.
U.S. federal and state regulators,
as well as the White House, have issued reports and releases concerning digital assets, including Bitcoin and digital asset markets. Further,
in 2023 the House of Representatives formed two new subcommittees: the Digital Assets, Financial Technology and Inclusion Subcommittee
and the Commodity Markets, Digital Assets, and Rural Development Subcommittee, each of which were formed in part to analyze issues concerning
crypto assets and demonstrate a legislative intent to develop and consider the adoption of federal legislation designed to address the
perceived need for regulation of and concerns surrounding the digital asset industry. However, the extent and content of any forthcoming
laws and regulations are not yet ascertainable with certainty, and it may not be ascertainable in the near future. A divided Congress
makes any prediction difficult.
In August 2021, Gary Gensler,
the chair of the SEC, stated that he believed investors using digital asset trading platforms are not adequately protected, and that activities
on the platforms can implicate the securities laws, commodities laws and banking laws, raising a number of issues related to protecting
investors and consumers, guarding against illicit activity, and ensuring financial stability. The chair expressed a need for the SEC to
have additional authorities to prevent transactions, products, and platforms from “falling between regulatory cracks,” as
well as for more resources to protect investors in “this growing and volatile sector.” The chair called for federal legislation
centering on digital asset trading, lending, and decentralized finance platforms, seeking “additional plenary authority” to
write rules for digital asset trading and lending. It is not possible to predict whether Congress will grant additional authorities to
the SEC or other regulators, what the nature of such additional authorities might be, how they might impact the ability of digital asset
markets to function or how any new regulations that may flow from such authorities might impact the value of digital assets generally
and bitcoin held by the Fund specifically. The consequences of increased federal regulation of digital assets and digital asset activities
could have a material adverse effect on the Fund and the Shares.
In June 2023, the SEC filed
lawsuits against Coinbase and Binance, two large U.S. digital asset trading platforms, alleging that Coinbase and Binance had been operating
as unregistered securities exchanges, brokers and clearing agencies in violation of U.S. federal securities laws. While the SEC has not
alleged that bitcoin is a security, the outcome of these enforcement actions and others may result in the substantial restructuring of
the digital asset market in the United States. However, the SEC has recently faced setbacks in U.S. courts in its attempt to regulate
the digital asset markets. In July 2023, the U.S. District Court for the Southern District of New York ruled on the SEC’s action
against Ripple Labs, Inc. The court found that offers and sales of XRP, a digital token, to institutions and sophisticated individuals
constituted securities transactions, but that offers and sales of XRP on crypto exchanges, distributions to employees, and other third-party
developers were not securities transactions. More recently, the D.C. Circuit Court found that the SEC’s denial of the Grayscale
Bitcoin Trust’s listing was “arbitrary and capricious” under the Administrative Procedures Act in light of the SEC’s
approval of two similar bitcoin futures-based ETPs. Nonetheless, until the SEC’s numerous actions against digital asset market participants
are resolved, the structure of the digital asset market in the United States will remain subject to substantial regulatory risk, which
may impact the demand for digital assets and the continued availability of existing exchanges and offerings.
FinCEN requires any administrator
or exchanger of convertible digital assets to register with FinCEN as a money transmitter and comply with the AML regulations applicable
to money transmitters. In 2015, FinCEN assessed a $700,000 fine against a sponsor of a digital asset for violating several requirements
of the Bank Secrecy Act by acting as a money services business and selling the digital asset without registering with FinCEN, and by failing
to implement and maintain an adequate AML program. In 2017, FinCEN assessed a $110 million fine against BTC-e, a now defunct digital asset
exchange, for similar violations. The requirement that exchangers that do business in the U.S. register with FinCEN and comply with AML
regulations may increase the cost of buying and selling bitcoin and therefore may adversely affect the price of bitcoin and an investment
in the Shares. In a March 2018 letter from FinCEN’s assistant secretary for legislative affairs to U.S. Senator Ron Wyden, the assistant
secretary indicated that under current law both the developers and the exchanges involved in the sale of tokens in an initial coin offering
(“ICO”) may be required to register with FinCEN as money transmitters and comply with the AML regulations applicable to money
transmitters.
The Office of Foreign Assets
Control (“OFAC”) of the U.S. Department of the Treasury (the “U.S. Treasury Department”) has added digital currency
addresses, including addresses on the Bitcoin Network to the list of Specially Designated Nationals whose assets are blocked, and with
whom U.S. persons are generally prohibited from dealing. Such actions by OFAC, or by similar organizations in other jurisdictions, may
introduce uncertainty in the market as to whether bitcoin that has been associated with such addresses in the past can be easily sold.
This “tainted” bitcoin may trade at a substantial discount to untainted bitcoin. Reduced fungibility in the Bitcoin markets
may reduce the liquidity of bitcoin and therefore adversely affect their price.
Under regulations from the
New York State Department of Financial Services (“NYDFS”), businesses involved in digital asset business activity for third
parties in or involving New York, excluding merchants and consumers, must apply for a license, commonly known as a BitLicense, from the
NYDFS and must comply with AML, cyber security, consumer protection, and financial and reporting requirements, among others. As an alternative
to a BitLicense, a firm can apply for a charter to become a limited purpose trust company under New York law qualified to engage in digital
asset business activity. Other states have considered or approved digital asset business activity statutes or rules, passing, for example,
regulations or guidance indicating that certain digital asset business activities constitute money transmission requiring licensure.
The inconsistency in applying
money transmitting licensure requirements to certain businesses may make it more difficult for these businesses to provide services, which
may affect consumer adoption of bitcoin and its price. In an attempt to address these issues, the Uniform Law Commission passed a model
law in July 2017, the Uniform Regulation of Virtual Currency Businesses Act, which has many similarities to the BitLicense and features
a multi-state reciprocity licensure feature, wherein a business licensed in one state could apply for accelerated licensure procedures
in other states. It is still unclear, however, how many states, if any, will adopt some or all of the model legislation.
In addition, the SEC, U.S.
state securities regulators and several foreign governments have issued warnings that digital assets sold in ICOs may be classified as
securities and that both those digital assets and ICOs may be subject to securities regulations. Generally speaking, ICOs are offered
and conducted on the Ethereum network or similar “smart contract” platforms, rather than the Bitcoin Network; however, bitcoin
has been used for consideration in ICOs on multiple networks and ICOs may be conducted using the Bitcoin Network. On-going and future
regulatory actions may alter, perhaps to a materially adverse extent, the nature of an investment in the Shares or the ability of the
Fund to continue to operate. Additionally, U.S. state and federal, and foreign regulators and legislatures have taken action against digital
asset businesses or enacted restrictive regimes in response to adverse publicity arising from hacks, consumer harm, or criminal activity
stemming from digital asset activity. In July 2019, U.S. Treasury Secretary Steven Mnuchin stated that he had “very serious concerns”
about digital assets. Secretary Mnuchin indicated that one source of concern is digital assets’ potential to be used to fund illicit
activities. In June 2020, digital asset businesses that are financial institutions were required to comply with the “travel rule”
guidelines promoted by the Financial Action Task Force and adopted by government regulators in a substantial number of developed economies.
The travel rule requires financial institutions to pass on certain transaction information in connection with financial transfers of size;
because of the nature of the Bitcoin Network, compliance with this mandate represents a challenge for digital asset businesses including
digital asset trading platforms.
Various foreign jurisdictions
have, and may continue to, in the near future, adopt laws, regulations or directives that affect the Bitcoin Network, the bitcoin markets,
and their users, particularly digital asset trading platforms and service providers that fall within such jurisdictions’ regulatory
scope. For example, on March 5, 2020, South Korea voted to amend its Financial Information Act to require virtual asset service providers
to register and comply with its AML and CFT framework. These measures also provide the government with the authority to close digital
asset trading platforms that do not comply with specified processes. The Chinese and South Korean governments have also banned ICOs and
there have been consistent reports over the course of the last five years that Chinese regulators have taken formal or informal action
to shut down or limit banking access to a number of China-based digital asset trading platforms. For example, on January 19, 2018, a Chinese
news organization reported that the People’s Bank of China had ordered financial institutions to stop providing banking or funding
to “any activity related to cryptocurrencies.” Similarly, in April 2018, the Reserve Bank of India banned the entities it
regulates from providing services to any individuals or business entities dealing with or settling digital assets. On March 5, 2020, this
ban was overturned in the Indian Supreme Court, although the Reserve Bank of India is currently challenging this ruling. There remains
significant uncertainty regarding the South Korean, Indian and Chinese governments’ future actions with respect to the regulation
of digital assets and digital asset trading platforms. Such laws, regulations or directives may conflict with those of the United States
and may negatively impact the acceptance of bitcoin by users, merchants and service providers outside the United States and may therefore
impede the growth or sustainability of the bitcoin economy in the European Union, China, South Korea, India and the United States and
globally, or otherwise negatively affect the value of bitcoin.
In July 2019, the United Kingdom’s
Financial Conduct Authority proposed rules to address harm to retail consumers deriving from the sale of derivatives and exchange traded
notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors citing extreme
volatility, valuation challenges and association with financial crime. In addition to exchange traded notes, the proposed ban would affect
financial products including contracts for difference, options and futures. Public consultation on the proposed restriction closed in
October 2019. As of the date of this Prospectus, the Financial Conduct Authority has not yet finalized its proposed ruling.
The transparency of blockchains
has in the past facilitated investigations by law enforcement agencies. However, certain privacy-enhancing features have been or are expected
to be introduced to a number of digital asset networks, and these features may provide law enforcement agencies with less visibility into
transaction histories. Although no regulatory action has been taken to treat privacy-enhancing digital assets differently, this may change
in the future.
The effect of any future regulatory
change on the Fund or Bitcoin is impossible to predict, but such change could be substantial and adverse to the Fund and the value of
the Shares.
Bitcoin Value
The value of bitcoin is determined
by the value that various market participants place on Bitcoin through their transactions. The most common means of determining the value
of a bitcoin is by surveying one or more Bitcoin Platforms where bitcoin is traded publicly and transparently (e.g., Coinbase,
Bitstamp, Kraken, itBit, LMAX Digital and Gemini).
On exchanges, bitcoin is traded
with publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the U.S. dollar or Euro. OTC
dealers or market makers do not typically disclose their trade data.
Currently, there are many
digital asset exchanges operating worldwide, representing a substantial percentage of bitcoin buying and selling activity, and providing
the most data with respect to prevailing valuations of bitcoin. Historically, a large percentage of the global Bitcoin trading volume
occurred on self-reported, unregulated Bitcoin Platforms located in China. Throughout 2017, however, the Chinese government took several
steps to tighten controls on Bitcoin Platforms, culminating in a ban on domestic cryptocurrency exchanges in November 2017, which forced
such exchanges to cease their operations or relocate. As a result, reported bitcoin trading volume on Chinese exchanges is now substantially
lower, representing a de minimis share of the global trade volume.
From time to time, there may
be intra-day price fluctuations across Bitcoin Platforms. However, they are generally relatively immaterial. For example, the variance
of prices on Bitcoin Platforms with the highest transaction volumes on average is lower than 2%. These variances usually stem from small
changes in the fee structures on different Bitcoin Platforms or differences in administrative procedures required to deposit and withdraw
fiat currency in exchange for Bitcoins and vice versa. The greatest variances are found at (i) smaller exchanges with relatively
low transaction volumes where even small trades can be large relative to an exchange’s transaction volume and as a result impact
the trading price on those exchanges and (ii) exchanges that are inaccessible to the Fund because they do not meet the Fund’s
regulatory requirements, and as a result are accessed and used by a captured market or by parties that do not have regulatory or compliance
requirements. Historically, the Fund has not needed to make any changes in the determination of principal market due to variances in pricing,
although it has changed its principal market due to disruption of operations of the Bitcoin Market considered to be the principal market.
OVERVIEW
OF COMMODITY Futures MARKETS and carbon markets
This section of the Prospectus provides a descriptive
overview of the commodity futures markets, including the market for Carbon Credit Futures. The overview briefly covers commodity futures
and the regulatory scheme pursuant to which the Fund and commodity interests markets generally operate. The following description is a
summary only; it is not intended to be complete.
Regulatory Framework
In the U.S., the purchase,
sale, trade and/or marketing of interests in commodities, such as futures contracts and swap agreements, is regulated by the CEA, as modified
by the Dodd-Frank Act, as well as the rules and regulations promulgated by the CFTC. The CEA establishes the statutory framework under
which the CFTC operates and grants the CFTC jurisdiction over exchange traded commodities (e.g., futures and options), over-the-counter
markets (e.g., swaps), as well as physical commodity transactions in interstate commerce.
The CEA defines a commodity
by referencing specific enumerated commodities, as well as “all services, rights, and interests . . . in which contracts for future
delivery are presently or in the future dealt in.” The CFTC has taken the view that certain digital assets, such as bitcoin are
commodities. Through clarifications in the CFTC federal register, renewable energy credits have been deemed to be an environmental commodity,
which has subsequently been expanded to include carbon credits as an environmental commodity.
In 2008, the Dodd-Frank Act
amended the CEA and established a comprehensive new framework for commodities that are purchased, sold, traded and/or marketed using an
agreement commonly known as a “swap.” Following the enactment of the Dodd-Frank Act, the CFTC was required to create, or promulgate,
a multitude of rules and regulations to enforce such laws. The term “swap” includes “any agreement, contract, or transaction…that
provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence,
nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial
consequence.” The CEA also provides a list of agreements that are also considered swaps, which includes “agreements, contracts
and transactions commonly known as … (xx) agriculture swaps, (xxi) emissions swaps, and (xxii) commodity swaps.” The Dodd-Frank
Act provides that the CFTC shall further define the term ’’swap’’ and the CFTC is given authority over swaps.
The CFTC possesses exclusive
jurisdiction to regulate the activities of CPOs and CTAs with respect to “commodity interests,” such as futures, swaps and
options, and has adopted regulations with respect to the activities of those persons and/or entities. Pursuant to authority in the CEA,
the NFA has been formed and registered with the CFTC as a registered futures association. At the present time, the NFA is the only self-regulatory
organization for commodity interest professionals, other than DCMs. The CFTC has delegated to the NFA responsibility for the registration
of CPOs, CTAs and FCMs and their respective associated persons.
Under the CEA, a registered
CPO, such as the Sponsor, is required to make annual filings with the CFTC and NFA describing its organization, capital structure, management
and controlling persons. In addition, the CEA authorizes the CFTC to require and review books and records of, and documents prepared by,
registered CPOs. Accordingly, CPOs are required to keep accurate, current and orderly records for each pool that they operate. Suspension,
restriction or termination of the Sponsor’s registration as a CPO would prevent it, until that registration were to be reinstated,
from managing the Fund, and might result in the termination of the Fund if a successor sponsor were not elected pursuant to the Trust
Agreement.
The regulation of commodity
interest transactions in the U.S. is an evolving area of law and is subject to ongoing modification by governmental and judicial action.
Considerable regulatory attention has been focused on non-traditional investment pools that are publicly distributed in the U.S. There
is a possibility of future regulatory changes within the U.S. altering, perhaps to a material extent, the nature of an investment in the
Fund, or the ability of the Fund to continue to implement its investment strategy. The effect of any future regulatory change on the Fund
is impossible to predict but could be substantial and adverse.
The Fund will use a portion
of its net assets to invest in and trade in Carbon Credit Futures; accordingly the Fund is a commodity pool and the Sponsor is a CPO subject
to regulation by the CFTC and the NFA under the CEA. The offering of the Fund’s Shares is registered with the SEC in accordance
with the Securities Act and the Fund’s Shares are registered with the SEC under the Exchange Act.
Commodity Pools
A commodity pool is any investment
trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests. In relevant part, a commodity
interest is a commodity for future delivery, security futures product, swap or commodity option. Since
the Fund intends to use pooled funds from investors to invest in bitcoin and Carbon Credit Futures, the Fund is a “commodity
pool” and is therefore subject to CFTC regulation.
The term “commodity
pool operator” is defined in part as “any person engaged in a business that is of the nature of a commodity pool…and
who, in connection therewith, solicits, accepts, or received from others, funds, securities or otherwise, for the purpose of trading in
commodity interests…”. A “commodity pool operator” is required to register with the CFTC and become a member
of the NFA. The Sponsor is a CPO and CTA and is registered with the CFTC and is a member of the NFA.
Futures Contracts
A futures contract is a standardized
contract traded on, or subject to the rules of, an exchange that calls for the future delivery of a specified quantity and type of a particular
underlying asset at a specified time and place or alternatively may call for cash settlement. Futures contracts are traded on a wide variety
of underlying assets, including bonds, interest rates, agricultural products, stock indexes, currencies, energy, metals, economic indicators
and statistical measures. The notional size and calendar term futures contracts on a particular underlying asset are identical and are
not subject to any negotiation, other than with respect to price and the number of contracts traded between the buyer and seller.
Certain futures contracts
settle in cash. The cash settlement amount reflects the difference between the contract purchase/sale price and the contract settlement
price. The cash settlement mechanism avoids the potential for either side to have to deliver the underlying asset. For other futures contracts,
the contractual obligations of a buyer or seller may generally be satisfied by taking or making physical delivery of the underlying asset
or by making an offsetting sale or purchase of an identical futures contract on the same or linked exchange before the designated date
of delivery. The difference between the price at which the futures contract is purchased or sold and the price paid for the offsetting
sale or purchase, after allowance for brokerage commissions and exchange fees, constitutes the profit or loss to the trader.
Futures contracts involve,
to varying degrees, elements of market risk. Additional risks associated with the use of futures contracts are imperfect correlation between
movements in the price of the futures contracts and the level of the underlying benchmark and the possibility of an illiquid market for
a futures contract. With futures contracts, there is minimal but some counterparty risk to a fund since futures contracts are exchange
traded and the exchange’s clearing house, as counterparty to all exchange-traded futures contracts, effectively guarantees
futures contracts against default. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit or trading may be suspended for specified times during the trading day. Futures contracts prices could
move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures
positions.
Margin Requirements
“Initial” or “original”
margin is the minimum amount of funds that a counterparty to a futures contract (or cleared derivatives contract) must deposit with their
commodity broker in order to establish an open position. “Maintenance” or “variation” margin is the amount (generally
less than initial margin) to which a trader’s account may decline before he must deliver additional margin so as to maintain open
positions. A margin deposit is like a cash performance bond. It helps assure the futures trader’s performance of the futures contracts
he purchases or sells.
Brokerage firms may require
higher amounts of margin versus that required by exchanges as a matter of policy in order to afford further protection for themselves.
Margin requirements are computed
each day by a commodity broker and the relevant exchange. At the close of each trading day, each open futures contract is marked to market,
that is, the gain or loss on the position is calculated from the prior day’s close. When the market value of a particular open futures
contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made
by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the customer’s position.
Carbon Markets
Carbon markets are designed
to reduce greenhouse gas (“GHG”) emissions and promote sustainable development by putting a price on carbon. Carbon markets
are markets where GHG emissions are commodified as a tradable unit either as an emission allowance in government compliance markets or
as a verified emission reduction/removal credit in voluntary markets. There are two types of instruments that are traded in carbon markets:
carbon credits (sometimes called “Allowances”) and carbon offsets. The two main types of carbon markets are compliance carbon
markets (“CCMs”) and voluntary carbon markets (“VCMs”). Carbon Credit Futures are an expansion of the carbon market.
Carbon Credit Futures are credit instruments where the buyer seeks to have exposure to CCMs or VCM market’s carbon offset projects,
but without directly buying or selling allowances or investing in any projects.
CCMs are established
by governments and operate under a cap-and-trade system. Cap-and-trade regimes set emission limits (i.e., the right to emit a certain
quantity of GHG emissions), which can be allocated or auctioned to the parties in the mechanism up to the total emissions cap. In these
types of markets, a regulator will define an allowed maximum level of GHG emissions (the “Cap”) for a certain group of entities
(e.g., countries, companies, or facilities). The Cap is then subdivided into distinct emission allowances, which are distributed by regulated
entities. To stay in compliance with the regulator, the covered entities need to submit one allowance for each ton of carbon dioxide equivalent
emitted during a compliance period (usually a year). The initial allocation of allowances to covered entities can be free of charge, partially
free, and/or sold at auction by the regulator.
Cap-and-trade regimes
and related markets are new and based on scientific principles that are subject to debate. Cap-and-trade regimes have arisen primarily
due to relative international consensus with respect to scientific evidence indicating a correlative relationship between the rise in
global temperatures and extreme weather events, on the one hand, and the rise in GHG emissions in the atmosphere, on the other hand. If
this consensus were to break down, cap-and-trade regimes and the value of the Fund may be negatively affected. Scientists are still debating
whether the rise in atmospheric GHGs is caused by human activity such as GHG emissions generated through the burning of fossil fuels,
as well as the acceptable level of GHG concentrations in the atmosphere. If the science supporting the relationship or the acceptable
level of GHG concentrations is discredited or proved to be incorrect or inaccurate, it may negatively affect cap-and-trade regimes and
the value of the Fund. There is no assurance that cap-and-trade regimes will continue to exist. Cap-and-trade may not prove to be an effective
method of reduction in GHG emissions. As a result or due to other factors, cap-and-trade regimes may be terminated or may not be renewed
upon their expiration.
New technologies may
arise that may diminish or eliminate the need for cap-and-trade markets. Ultimately, the cost of emissions credits is determined by the
cost of actually reducing emissions levels. If the price of credits becomes too high, it will be more economical for companies to develop
or invest in green technologies, thereby suppressing the demand for credits and adversely affecting the price of the Fund. Emission limit
allocations may be larger or smaller than is needed for a stable price of credits and can lead to large price volatility, which could
affect the value of the Fund. Depending upon the industries covered under each cap-and-trade mechanism represented in the Index, unpredictable
demand for their products and services can affect the value of GHG emissions credits. For example, very mild winters or very cool summers
can decrease demand for electric utilities and therefore require fewer carbon credits to offset reduced production and GHG emissions.
The ability of the GHG emitting companies to pass on the cost of emissions credits to consumers can affect the price of the Carbon Credit
Futures. If the price of emissions can be passed on to the end customer with little impact upon consumer demand, it is likely that industries
may continue emitting and purchase any shortfall in the market at the prevailing price. If, however, the producer is unable to pass on
the cost, it may be incentivized to reduce production in order to decrease its need for offsetting emissions credits, which could adversely
affect the price of carbon credit futures and the Fund.
Regulatory risk related
to changes in regulation and enforcement of cap-and-trade regimes could also adversely affect market behavior. If fines or other penalties
for non-compliance are not enforced, incentives to purchase GHG credits will deteriorate, which could result in a decline in the price
of emissions credits and a drop in the value of the Fund. In addition, as cap-and-trade markets develop, new regulation with respect to
these markets may arise, which could have a negative effect on the value and liquidity of the cap-and-trade markets and the Fund.
In the VCM, often referred
to as a “baseline-and-credit” system, a variety of private organizations allows individuals or businesses to purchase offsets
from emission reduction or removal projects. In these markets, the private organization defines how emission (reduction or removal) credits
can be generated by activities/projects that reduce or remove GHG emissions from the atmosphere compared to a reference scenario (baseline)
that reflects the counterfactual situation without such activities. The difference between the baseline emissions and the emissions of
the activity determines how many credits can be issued. To generate emission credits, verification of the reduction/removal by an officially
recognized institution (a verifier) is necessary to calculate the reduction/removal of emissions into its carbon-dioxide (“CO2”)
equivalent (“CO2e”). The carbon credit represents one metric-ton of CO2e and can then be used as offsets against mandatory
or voluntary GHG emission targets or other policy instruments aiming at GHG mitigation. The Fund will not invest in any Carbon Credit
Futures that provide exposure to VCMs.
Description
of the index
The following is a summary
of the 7RCC Vinter Bitcoin Carbon Credit Index. The Index aims to track the financial performance of investing in a portfolio with 80%
allocation to bitcoin and a 20% allocation to Carbon Credit Futures. The purpose of the Index is to obtain exposure to the crypto asset
class via bitcoin with an environmentally responsible approach by offsetting carbon emissions.
The Carbon Credit Futures
component of the Index is built with a combination of three carbon credit indices: (i) Solactive Carbon European Union Allowance Futures
ER Index (SOCARBN), which tracks European Union Allowances futures; (ii) Solactive California Carbon Rolling Futures ER Index (SOCCAER),
which tracks California Carbon Allowance futures; and (iii) Solactive Futures Series Regional Greenhouse Gas Rolling Futures Index, which
tracks Regional Greenhouse Gas Initiative futures. The Index includes front-month futures contracts that are rolled monthly. The weights
of the components are adjusted once per year (in November) and the weights are proportional to the trading volume over the last six months.
The Index rolls over five business days into the new contract, with an expiration of December of the next calendar year. The carbon credit
portion of the Index is calculated by Solactive.
The Index is rebalanced quarterly,
starting at the end of January. After a rebalance, the portfolio is updated so that its current weights per asset equal the rebalancing
weights per asset.
Vinter is the benchmark administrator
for the bitcoin portion of the Index and is the central recipient of input data and evaluates the integrity and accuracy of input data
on a consistent basis. Solactive is the benchmark administrator for the Carbon Credit Futures portion of the Index. Solactive also calculates
the value of the Carbon Credit Futures portion of the Index and the value of the Index overall.
Performance
of the other commodity pools operated by the cpo
Performance of Related Pools
The following performance
information is presented in accordance with CFTC regulations. The performance of the Fund will differ materially from the performance
of the Related Pools which is included herein. The performance of the Related Pools which is summarized herein is expected to be materially
different from the Fund and the past performance summaries of the Related Pools below are generally not representative of how the Fund
might perform in the future. No performance information is presented with respect to the Fund, which has not commenced investment operations
prior to the date of this Prospectus and which will not begin trading until after the initial Creation Baskets of the Fund are purchased
by the initial Authorized Purchaser (all as described in the “Plan of Distribution” section). The performance of the Fund
will differ materially from the Related Pools listed below.
Performance information is
set forth in accordance with CFTC regulations, since each fund’s inception of trading.
PERFORMANCE OF [ ]
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Name of Commodity Pool:
Type of Commodity Pool:
Inception of Trading:
Aggregate Subscriptions (from inception through March
31, 2023):
Aggregate Redemptions (from inception through March 31, 2023):
Total Net Assets as of June 30, 2023:
NAV per Share as of June 30, 2023:
Worst Monthly Percentage Draw-down: [ ] to [ ] ([ ]%)
Worst Peak-to-Valley Draw-down: [ ] to [ ] ([ ]%)
Number of shareholders (as of June 30, 2023):
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS.
Rates of Return:*
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS.
* The monthly
rate of return is calculated by dividing the ending NAV of a given month by the ending NAV of the previous month, subtracting 1 and multiplying
this number by 100 to arrive at a percentage increase or decrease.
Draw-down: Losses experienced over a specified period.
Draw-down is measured on the basis of monthly returns only and does not reflect intra-month figures.
Worst Monthly Percentage Draw-down: The largest single
month loss sustained since inception of trading.
Worst Peak-to-Valley Draw-down: The largest percentage
decline in the NAV per share over the history of the fund. This need not be a continuous decline but can be a series of positive and negative
returns where the negative returns are larger than the positive returns. Worst Peak-to-Valley Draw-down represents the greatest cumulative
percentage decline in month-end per share NAV that is not equaled or exceeded by a subsequent month-end per share NAV.
Management’s
discussion and analysis of financial condition and results of operations
The Fund is newly formed and
has no operating history.
Charges
Breakeven Analysis
The breakeven analysis set
forth below is a hypothetical illustration of the approximate dollar returns and percentage returns for the redemption value of a single
Share to equal the amount invested twelve months after the investment is made. For purposes of this breakeven analysis, an initial selling
price of $25.00 per Share, is assumed. The breakeven analysis is an approximation only and assumes a constant month-end NAV. In order
for a hypothetical investment in Shares to breakeven over the next 12 months, assuming a selling price of $25.00 per Share, the investment
would have to generate a [ ]% or $[ ] return. The numbers in the chart below have been rounded to the nearest 0.01.
|
Per Share |
|
|
Assumed initial selling price per Share(1) |
$ |
Management Fee(2) |
$ |
Estimated Brokerage Commissions and Fees(3) |
$ |
Other Fund Fees and Expenses(4) |
$ |
Interest and Other Income(5) |
$ |
Amount of trading income (loss) required for the redemption value at the end of one year to equal the selling price of the Share |
$ |
Percentage of initial selling price per Share(6) |
% |
| (1) | The breakeven analysis set forth
in this table assumes that the Shares have a constant NAV equal to the amount shown. This amount is the expected NAV of the Shares on
the first day of Fund operations. The actual NAV of the Fund differs and is likely to change on a daily basis. The numbers provided in
this chart have been rounded to the nearest 0.01. The breakeven analysis reflects all fees and expenses, including estimated rebalancing
expenses that are anticipated to be incurred by the Trust during a year of an investor’s investment. |
| (2) | From the Management Fee, the Sponsor
pays certain of the routine operational, administrative and other ordinary expenses of the Fund, generally as determined by the Sponsor,
including but not limited to, fees and expenses of the Administrator, Sub-Administrator, Bitcoin Custodian, Non-Digital Custodian, Marketing
Agent, Transfer Agent, licensors, accounting and audit fees and expenses, tax preparation expenses, legal fees, ongoing SEC registration
fees, and report preparation and mailing expenses. These fees and expenses are not included in the breakeven table because they are paid
for by the Sponsor through the proceeds from the Management Fee. |
| (3) | Reflects estimated brokerage commissions
and fees in relation to the Carbon Credit Futures and reflected on a per trade basis. The actual amount of brokerage commissions and
trading fees to be incurred will vary based upon the trading frequency of the Fund. The Fund may elect to waive fees in order to reduce
the Fund’s expenses. Investors may pay customary brokerage commissions in connection with purchases of the Shares. Because such
brokerage commission rates will vary from investor to investor, such brokerage commissions have not been included in the Breakeven Table.
Investors are encouraged to review the terms of their brokerage accounts for applicable charges. |
| (4) | The Fund pays all transaction related
fees and expenses charged in connection with trading activities for the Fund’s investments and for maintenance of its CFTC regulatory
status as a commodity pool. The Fund also pays all of its non-recurring and unusual fees and expenses, if any, as determined by the Sponsor.
Non-recurring and unusual fees and expenses 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 Fund. Routine operational, administrative and other ordinary expenses are not deemed extraordinary
expenses. |
| (5) | The Fund seeks to earn interest
and other income in high credit quality, short-duration instruments or deposits associated with the pool’s cash management in connection
with its investments in futures contracts and other financial instruments, that may be used to offset expenses. These investments may
include, but are not limited to, short-term Treasury Securities, demand deposits, and money market funds. Considering various uncertain
factors in the US and commodity markets, the Sponsor has estimated a blended interest rate of ____%. The actual rate may vary and not
all assets within the Fund will necessarily earn interest. The actual rate may vary and not all assets of the Fund will earn interest. |
| (6) | This represents the estimated approximate
percentage for the redemption value of a hypothetical initial investment in a single Share equal to the amount invested twelve months
after the investment was made. The estimated approximate percentage of selling price is ___% or $___ per share. |
Management Fee
The Fund pays the Sponsor
a management fee (the “Management Fee”), monthly in arrears, in an amount equal to [ ]% per annum of the daily NAV of the
Fund. The Management Fee is paid in consideration of the Sponsor’s services related to the management of the Fund’s business
and affairs. No other management fee is paid by the Fund. The Management Fee is paid in consideration of the Sponsor’s trading advisory
services and the other services provided to the Fund that the Sponsor pays directly. From the Management Fee, the Sponsor is responsible
for paying certain fees and expenses of the Administrator, Trustee, Marketing Agent, Transfer Agent, and certain routine operational,
administrative and other ordinary expenses of the Fund. These fees and expenses are not included in the Breakeven Table. The Fund pays
all transaction-related fees and expenses charged in connection with the trading activities for the Fund’s investments and for maintenance
of its CFTC regulatory status as a commodity pool.
Licensing and Index Calculation
Fee
The Fund pays a fee to Vinter
to administer and maintain the Index.
Recurring and Non-Recurring
Fees and Expenses/Other Fund-Assumed Fees and Expenses
The Fund pays all of its non-recurring
and unusual fees and expenses, if any, as determined by the Sponsor. Non-recurring and unusual 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 Fund. Routine operational, administrative
and other ordinary expenses are not deemed extraordinary expenses.
In addition, as noted below,
the Fund pays all transaction-related fees and expenses charged in connection with trading activities for the Fund’s investments.
Further, the Fund pays all fees and expenses required for maintenance of its CFTC regulatory status as a commodity pool.
Selling Commission
Retail investors may purchase
and sell Shares through traditional brokerage accounts. Investors are expected to be charged a customary commission by their brokers in
connection with purchases of Shares that will vary from investor to investor. Investors are encouraged to review the terms of their brokerage
accounts for applicable charges. The price at which an Authorized Purchaser sells a Share may be higher or lower than the price paid by
such Authorized Purchaser in connection with the creation of such Share in a Creation Unit.
Brokerage Commissions and
Fees
The Fund pays all of its respective
brokerage commissions, including applicable exchange fees, NFA fees and give-up fees, pit brokerage fees and other transaction related
fees and expenses charged in connection with trading activities for the Fund’s investments in CFTC regulated investments.
The Fund bears other transaction
costs including the effects of trading spreads and financing costs/fees, if any, associated with the use of Carbon Credit Futures, and
costs relating to the purchase of money market instruments.
USE
OF PROCEEDS
The Fund uses the proceeds
of the offering of Shares of the Fund to make investments in a manner consistent with its investment objective. Proceeds received by the
Fund from the issuance of Baskets will be used to acquire bitcoin and Carbon Credit Futures. Such deposits of cash are held by the Non-Digital
Custodian on behalf of the Fund until (i) used to acquire bitcoin and/or facilitate the Fund’s investment in Carbon Credit Futures;
(ii) accrued and distributed to pay fees due to the Sponsor and Fund expenses and liabilities not assumed by the Sponsor, (iii) distributed
to Authorized Purchasers in connection with redemptions of Baskets, or (iv) disposed of in a liquidation of the Fund.
In connection with receipt
of a Purchase Order (as defined below) accepted by the Marketing Agent and Transfer Agent, the Sponsor, on behalf of the Fund, is responsible
for acquiring bitcoin and increasing its investment in Carbon Credit Futures in an amount equal to the value of the Basket. The Sponsor
will allocate the proceeds between the Bitcoin Custodian and the Non-Digital Custodian in accordance with its investment strategies. The
Bitcoin Trading Counterparties (defined below) with which the Sponsor will engage in bitcoin transactions are unaffiliated third-parties
and all transactions will be done on an arms-length basis. When seeking to purchase bitcoin on behalf of the Fund, the Sponsor will seek
to purchase bitcoin at commercially reasonable price and terms from any of the approved Bitcoin Trading Counterparties. Once agreed upon,
the transaction will generally occur on an “over-the-counter” basis. The Bitcoin Trading Counterparty must deposit the required
amount of bitcoin by end of day Eastern Time on the business day following the Purchase Order Date prior to any movement of cash from
the Non-Digital Custodian or delivery of Shares from the Transfer Agent. Upon receipt of the deposit amount of bitcoin at the Bitcoin
Custodian from the Bitcoin Trading Counterparty, the Bitcoin Custodian will notify the Sponsor that the bitcoin has been received. The
Sponsor will then notify the Transfer Agent that the bitcoin has been received, and the Transfer Agent will direct DTC to credit the number
of Shares ordered to the Authorized Purchaser’s DTC account and will wire the cash previously sent by the Authorized Purchaser to
the Bitcoin Trading Counterparty to complete settlement of the Purchase Order and the acquisition of the bitcoin by the Fund.
In connection with a Redemption
Order (as defined below), the Sponsor, on behalf of the Fund, is responsible for selling bitcoin and Carbon Credit Futures in an amount
equal to the value of the Basket. When seeking to sell bitcoin, the Sponsor will seek to sell bitcoin at commercially reasonable price
and terms from any of the approved Bitcoin Trading Counterparties. Once agreed upon, the transaction will generally occur on an “over-the-counter”
basis. The Bitcoin Custodian will not send the required amount of bitcoin until the Non-Digital Custodian has received the cash from the
Bitcoin Trading Counterparty and is instructed by the Sponsor to make such transfer. Once the Bitcoin Trading Counterparty has sent the
cash to the Non-Digital Custodian in an agreed upon amount to settle the agreed upon sale of the Basket Amount of bitcoin, the Transfer
Agent will notify the Sponsor. The Sponsor will then notify the Bitcoin Custodian to transfer the bitcoin to the Bitcoin Trading Counterparty,
and the Transfer Agent will facilitate the Shares in exchange for cash. Once the Authorized Purchaser has delivered the Shares represented
by the Basket to be redeemed to the Fund’s DTC account, the Non-Digital Custodian will wire the requisite amount of cash to the
Authorized Purchaser.
Each Bitcoin Trading Counterparty
must be approved by the Sponsor. The Sponsor has instituted a process for approving and monitoring Bitcoin Trading Counterparties. All
bitcoin trading counterparties must be approved by the Sponsor on behalf of the Fund before the Fund may engage in transactions with the
entity. The Sponsor continuously reviews all approved Bitcoin Trading Counterparties and will reject the approval of any previously approved
Bitcoin Trading Counterparty if new information arises regarding the entity that puts the appropriateness of that entity as an approved
Bitcoin Trading Counterparty in doubt.
Who
may subscribe
Only Authorized Purchasers
may create or redeem Baskets. Each Authorized Purchaser must (1) be a registered broker-dealer or other securities market participant
such as a bank or other financial institution which is not required to register as a broker-dealer to engage in securities transactions,
(2) be a member of a national clearing agency, and (3) have entered into an agreement with the Sponsor (an Authorized Purchaser Agreement).
DESCRIPTION
OF CREATION AND REDEMPTION OF SHARES
When the Fund creates or redeems
its Shares, it will do so only in Baskets (blocks of [10,000] Shares) based on the NAV per Share (net of accrued but unpaid expenses and
liabilities) multiplied by the number of Shares comprising a Basket ([10,000]). This is called the “Basket Price.” The Fund will sell its assets (in the case of redemption orders) or allocate proceeds (in the case of creation orders) in accordance with
the assets of the Index. The Sponsor will retain discretion to determine which of the Custodians, to the extent there are multiple custodians
for bitcoin or multiple custodians for cash and cash equivalents in connection with Carbon Credit Futures, are selected to facilitate
the respective order.
Authorized Purchasers are
the only persons that may place orders to create and redeem Baskets. Authorized Purchasers must be (1) registered broker-dealers or other
securities market participants, such as banks and other financial institutions, that are not required to register as broker-dealers to
engage in securities transactions described below, and (2) DTC Participants. To become an Authorized Purchaser, a person must enter into
an Authorized Purchaser Agreement. The Authorized Purchaser Agreement provides the procedures for the creation and redemption of Baskets
and for the delivery of the cash or Shares required for such creation and redemptions. The Authorized Purchaser Agreement and the related
procedures attached thereto may be amended by the Fund, without the consent of any Shareholder or Authorized Purchaser. Authorized Purchasers
must pay the Transfer Agent a non-refundable fee for each order they place to create or redeem one or more Baskets. The transaction fee
may be waived, reduced, increased or otherwise changed by the Sponsor in its sole discretion. Authorized Purchasers who make deposits
with the Fund in exchange for Baskets receive no fees, commissions or other form of compensation or inducement of any kind from either
the Fund or the Sponsor, and no such person will have any obligation responsibility to the Sponsor or the Fund to effect any sale or resale
of Shares.
Each Authorized Purchaser
will be required to be registered as a broker-dealer under the Exchange Act and a member in good standing with FINRA, or exempt from being
or otherwise not required to be licensed as a broker-dealer or a member of FINRA, and will be qualified to act as a broker or dealer in
the states or other jurisdictions where the nature of its business so requires. Certain Authorized Purchasers may also be regulated under
federal and state banking laws and regulations. Each Authorized Purchaser has its own set of rules and procedures, internal controls and
information barriers as it determines is appropriate in light of its own regulatory regime.
Under the Authorized Purchaser
Agreement, the Sponsor, and the Fund under limited circumstances, have agreed to indemnify the Authorized Purchasers against certain liabilities,
including liabilities under the Securities Act, and to contribute to the payments the Authorized Purchasers may be required to make in
respect of those liabilities.
The following description
of the procedures for the creation and redemption of Baskets is only a summary and an investor should refer to the relevant provisions
of the Trust Agreement and the form of Authorized Purchaser Agreement for more detail. The Trust Agreement and form of Authorized Purchaser
Agreement are filed as exhibits to the registration statement of which this prospectus is a part.
Determination of Basket Price
The Basket Price required
to create each Basket changes from day to day. On each day that the Exchange is open for regular trading, the Administrator adjusts the
Basket Price as appropriate to reflect accrued expenses and any loss in value of the assets that may occur. The computation is made by
the Administrator each business day prior to the commencement of trading on the Exchange. The Basket Price so determined is communicated
to all Authorized Purchasers and made available on the Trust’s website for the Shares. The Exchange also publishes the Basket Price
determined by the Administrator as indicated above.
Creation Procedures
The manner by which creations
are made is dictated by the terms of the Authorized Purchaser Agreement. On any business day, an Authorized Purchaser may create Shares
by placing an order to purchase one or more Baskets with the Transfer Agent through the Marketing Agent in exchange for cash (a “Purchase
Order”). Such orders are subject to approval by the Marketing Agent and Transfer Agent and may be received: (i) in writing by facsimile;
(ii) through the Transfer Agent’s electronic order entry system; or (iii) by telephone to the Administrator at the Transfer Agent
according to certain additional procedures. Such orders are subject to approval by the Marketing Agent and Transfer Agent. For purposes
of processing creation and redemption orders, a “business day” means any day other than a day when the Exchange is closed
for regular trading. Purchase Orders must be placed by 2:00 p.m., eastern time, or the close of regular trading on the Exchange, whichever
is earlier (the “Order Cut-Off Time”), or an earlier time as determined and communicated by the Sponsor and its agent. The
day on which a Purchase Order is accepted by the Transfer Agent is considered the “Purchase Order Date.” If the Purchase Order
is accepted, it will receive the next Business Day’s Basket Price if submitted before the applicable Order Cutoff Time.
By placing a Purchase Order,
an Authorized Purchaser agrees to deposit cash as determined by the Sponsor with the Fund’s Non-Digital Custodian. The total deposit
required to create each basket (“Creation Basket Deposit”) will be an amount of cash that is in the same proportion to the
total assets of the Fund (net of estimated accrued but unpaid fees, expenses and other liabilities) on the date the Purchase Order is
properly received as the number of Shares to be created under the Purchase Order is in proportion to the total number of Shares outstanding
on the date the Purchase Order is received. The Sponsor, through the Transfer Agent, shall notify the Authorized Purchaser of the amount
of cash to be included in deposits to create Baskets by e-mail or telephone correspondence and such amount will be available via the Fund’s
website.
An Authorized Purchaser who
places a Purchase Order is responsible for transferring to the Fund’s account with the Non-Digital Custodian the required amount
of cash by the end of the next Business Day following the Purchase Order Date (T+1) or as agreed to by the Authorized Purchaser, Sponsor,
Marketing Agent and Transfer Agent in advance of when the Purchase Order is placed. Prior to the delivery of Baskets for a Purchase Order,
the Authorized Purchaser must also have submitted via CNS the non-refundable transaction fee due for the Purchase Order. Upon receipt
of the deposit amount, the Administrator will cause DTC to credit the number of Baskets ordered to the Authorized Purchaser’s DTC
account.
[The Sponsor may in its sole
discretion limit the number of Shares created pursuant to Purchase Orders on any specified day without notice to the Authorized Purchasers
and may direct the Marketing Agent to reject any Purchase Orders in excess of such capped amount. The Sponsor may choose to limit the
number of Shares created pursuant to Purchase Orders when it deems so doing to be in the best interest of Shareholders. It may choose
to do so when it believes the market is too volatile to execute a bitcoin transaction, when it believes the price of bitcoin is being
inconsistently, irregularly, or discontinuously published from bitcoin trading venues and other data sources, or when it believes other
similar circumstances may create a scenario in which accepting Purchase Orders would not be in the best interests of the Shareholders.
The Sponsor does not believe that the Fund’s ability to arrive at such a determination will have a significant impact on the Shares
in the secondary market because it believes that the ability to create Shares would be reinstated shortly after such determination is
made, and any entity desiring to create Shares would be able to do so once the ability to create Shares is reinstated. However, it is
possible that such a determination would cause the Shares to trade at premiums or discounts relative to the Fund’s NAV on the secondary
market if arbitrageurs believe that there is risk that the creation and redemption process is not available, as this process is a component
of keeping the price of the Shares on the secondary market closely aligned to the Fund’s NAV.]
Rejection of Purchase Orders
The Sponsor or the Marketing
Agent reserve the absolute right to reject acceptance of a Purchase Order if:
| ● | it determines that, due to position limits or otherwise, investment alternatives that will enable a Fund
to meet its investment objective are not available to the Fund at that time; |
| ● | it determines that the Purchase Order is not in proper form; |
| ● | it believes that acceptance would have adverse tax consequences to the Fund or the Shareholders; |
| ● | the acceptance or receipt of a Creation Basket Deposit would, in the opinion of legal counsel to the Sponsor,
be unlawful; or |
| ● | if circumstances outside the control of the Sponsor, the Marketing Agent or the Non-Digital Custodian
make it for all practical purposes not feasible to process creations of Creation Baskets. |
None of the Sponsor, the Marketing
Agent, the Non-Digital Custodian or the Bitcoin Custodian will be liable for the rejection of any Purchase Order. The Marketing Agent
shall notify the Authorized Purchaser of a rejection or revocation of any Purchase Order, however it is under no duty to give notification
of any specific defects or irregularities in the delivery of the Creation Basket Deposit, nor shall the Marketing Agent or the Fund incur
any liability for the failure to give any such notification. The Fund and Marketing Agent may not revoke a previously accepted Purchase
Order.
Redemption Procedures
On any business day, an Authorized
Purchaser may place an order with the Transfer Agent to redeem one or more Baskets (a “Redemption Order”). Redemption Orders
must be placed by 2:00 p.m. eastern time (the “Redemption Order Cut-Off Time”), or the close of regular trading on the Exchange,
whichever is earlier. A Redemption Order will be effective on the date it is accepted by the Transfer Agent (“Redemption Order Date”).
By placing a Redemption Order,
an Authorized Purchaser agrees to deliver the Redemption Basket to be redeemed through DTC’s book-entry system to the Fund’s
account with the Non-Digital Custodian not later than the end of the next Business Day following the effective date of the Redemption
Order (“Redemption Distribution Date”) or the end of such later Business Day as agreed to by the Authorized Purchaser and
the Transfer Agent in advance of when the Redemption Order is placed. Failure to consummate such delivery shall result in the cancellation
of the order. Prior to the delivery of the redemption distribution for a Redemption Order, the Authorized Purchaser must also have submitted
via CNS or such other means deemed acceptable by the Sponsor, the non-refundable Transaction Fee due for the Redemption Order.
The redemption distribution
due from the Fund is delivered to the authorized Purchaser on the Redemption Distribution Date if the Fund’s DTC account has been
credited with the Baskets to be redeemed pursuant to the terms of the Authorized Purchaser Agreement. [That notwithstanding, no such distribution
shall be made until the Non-Digital Custodian has received the cash necessary from selling the Fund’s bitcoin to effectuate the
Redemption Basket from the Bitcoin Trading Counterparty. The Bitcoin Custodian will not send the requisite amount of bitcoin until the
Non-Digital Custodian has received the cash from the Bitcoin Trading Counterparty and is instructed by the Sponsor to make such transfer.
Once the Bitcoin Trading Counterparty has sent the cash to the Non-Digital Custodian in an agreed upon amount to settle the agreed upon
sale, the Transfer Agent will notify the Sponsor, who will in turn notify the Bitcoin Custodian to transfer the bitcoin to the Bitcoin
Trading Counterparty. The Transfer Agent will then facilitate the Shares in exchange for cash. Once the Authorized Purchaser has delivered
the Shares represented by the Basket to be redeemed to the Fund’s DTC account, the Non-Digital Custodian will wire the requisite
amount of cash to the Authorized Purchaser. If the Fund’s DTC account has not been credited with all of the Shares of the Basket
to be redeemed, the redemption distribution will be delayed until such time as the Transfer Agent confirms receipt of all such Shares.
If the Bitcoin Trading Counterparty fails to deliver the cash to the Non-Digital Custodian, the transaction will be cancelled, and no
transfer of bitcoin or Shares will occur.]
Suspension or Rejection of
Redemption Orders
The Sponsor may, in its discretion,
suspend the right of redemption, or postpone the redemption settlement date, (1) for any period during which the Exchange is closed other
than customary weekend or holiday closings, or trading on the Exchange is suspended or restricted, (2) for any period during which an
emergency exists as a result of which delivery, disposal or evaluation of [Treasuries] is not reasonably practicable (for example, as
a result of a significant technical failure, power outage, or network error), or (3) for such other period as the Sponsor determines to
be necessary for the protection of the Shareholders. None of the Sponsor, the Marketing Agent, Non-Digital Custodian or the Bitcoin Custodian
will be liable to any person or in any way for any loss or damages that may result from any such suspension or postponement.
Redemption Orders must be
made in whole Baskets. The Sponsor or the Marketing Agent reserve the absolute right to reject acceptance of a Redemption Order if:
| ● | it is determined by the Sponsor or Marketing Agent to not be in the proper form; |
| ● | the fulfillment of which its counsel advises might be unlawful; or |
| ● | if the number of Shares being redeemed would reduce the remaining outstanding Shares below [50,000] Shares
(i.e., five baskets of [10,000] Shares each) or less, unless the Sponsor has reason to believe that the placer of the redemption
order does in fact possess all the outstanding Shares of the Fund and can deliver them. |
Creation and Redemption Transaction
Fee
To compensate the Transfer
Agent for expenses incurred in connection with the creation and redemption of Baskets, an Authorized Purchaser is required to pay a transaction
fee to the Transfer Agent to create or redeem Baskets, which does not vary in accordance with number of Baskets in such order. The transaction
fee may be reduced, increased or otherwise changed by the Sponsor. As of the date of this prospectus, the transaction fee is $[ ].
Tax Responsibility
Authorized Purchasers are
responsible for any transfer tax, sales or use tax, stamp tax, recording tax, value added tax or similar tax or governmental charge applicable
to the creation or redemption of Baskets, regardless of whether or not such tax or charge is imposed directly on the Authorized Purchaser,
and agree to indemnify the Sponsor and the Fund if they are required by law to pay any such tax, together with any applicable penalties,
additions to tax and interest thereon.
Secondary Market Transactions
As discussed above, Authorized
Purchasers are the only persons that may place orders to create and redeem Baskets. Authorized Purchasers must be registered broker-dealers
or other securities market participants, such as banks and other financial institutions that are not required to register as broker-dealers
to engage in securities transactions. An Authorized Purchaser is under no obligation to create or redeem Baskets, and an Authorized Purchaser
is under no obligation to offer to the public Shares of any Basket it does create.
Authorized Purchasers that
do offer to the public Shares from the Basket they create will do so at per-Share offering prices that are expected to reflect, among
other factors, the trading price of the Shares on the Exchange, the NAV of the Fund at the time the Authorized Purchaser purchased the
Baskets, the NAV of the Shares at the time of the offer of the Shares to the public, the supply of and demand for Shares at the time of
sale, and the liquidity of the Fund’s investments. Baskets are generally expected to be redeemed when the price per Share is at
a discount to the per Share NAV. Shares initially comprising the same Basket but offered by Authorized Purchasers to the public at different
times may have different offering prices. An order for one or more Baskets may be placed by an Authorized Purchaser on behalf of multiple
clients. Authorized Purchasers who make deposits of cash with the Fund in exchange for Baskets receive no fees, commissions or other forms
of compensation or inducement of any kind from either the Fund or the Sponsor and no such person has any obligation or responsibility
to the Sponsor or the Fund to effect any sale or resale of Shares.
Shares are expected to trade
in the secondary market on the Exchange. Shares may trade in the secondary market at prices that are lower (i.e., a discount) or
higher (i.e., a premium) relative to their NAV per Share. The amount of the discount or premium in the trading price relative to
the NAV per Share may be influenced by various factors, including the number of investors who seek to purchase or sell Shares in the secondary
market and the liquidity of the Fund’s investments.
Additional
Information about the trust
Description of the Trust
The Trust is a Delaware Statutory
Trust that was formed on February 10, 2023, by the filing of the Certificate of Trust with the Delaware Secretary of State in accordance
with the provisions of the Delaware Statutory Trust Act (“DSTA”). The Trust operates pursuant to the Trust Agreement, which
is the “governing instrument” of the Trust under the laws of the State of Delaware. The Fund is a separate series of the Trust.
The Fund is a passively managed
fund and does not pursue active management investment strategies. The Sponsor does not actively manage the assets held by the Fund, including
its holding of bitcoin. The Sponsor believes that the Fund will provide a cost-efficient way for investors to implement strategic and
tactical asset allocation strategies that use bitcoin by investing in the Shares rather than purchasing, holding and trading bitcoin directly,
while simultaneously providing exposure to Carbon Credit Futures.
The 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 the
Investment Company Act. The Trust or, as the case may be, the Fund may dissolve at any time if the Trust is required to be registered
as an investment company under the Investment Company Act. The Fund is a commodity pool for purposes of the CEA. As a result, the Fund
and Sponsor are each subject to regulation thereunder.
The Trust has no fixed termination
date and shall terminate pursuant to the provisions of the Trust Agreement or as otherwise provided by law.
Description of the Trust
Agreement
The following is a description
of the material terms of the Trust Agreement. The Trust Agreement establishes the roles, rights and duties of the Sponsor and the Trustee.
The following discussion is qualified in its entirety by reference to the Trust Agreement.
Voting Rights
Shareholders have no voting
rights with respect to the Trust or the Fund except as expressly provided in the Trust Agreement. The Trust Agreement provides that Shareholders
representing at least a majority (over 50%) of the outstanding Shares of the Fund together as a single class(excluding Shares acquired
by the Sponsor in connection with its initial capital contribution to any Trust series) may vote to (i) continue the Trust by electing
a successor Sponsor as described above, and (ii) approve amendments to the Trust Agreement that impair the right to surrender Redemption
Baskets for redemption. (Trustee consent to any amendment to the Trust Agreement is required if the Trustee reasonably believes that such
amendment adversely affects any of its rights, duties or liabilities.) In addition, Shareholders holding Shares representing seventy-five
percent (75%) of the outstanding Shares of the Fund, voting together as a single class (excluding Shares acquired by the Sponsor in connection
with its initial capital contribution to any Trust series) may vote to dissolve the Trust upon not less than ninety (90) days’ notice
to the Sponsor.
Liability of Covered Persons and Indemnification
Under the Trust Agreement,
the Sponsor, the Trustee and their respective Affiliates (collectively, “Covered Persons”) shall have no liability to the
Trust, the Fund, or to any Shareholder for any loss suffered by the Trust or the Fund which arises out of any action or inaction of such
Covered Person if such Covered Person, in good faith, determined that such course of conduct was in the best interest of the Trust or
the Fund and such course of conduct did not constitute gross negligence or willful misconduct of such Covered Person. Subject to the foregoing,
neither the Sponsor nor any other Covered Person shall be personally liable for the return or repayment of all or any portion of the capital
or profits of any Shareholder or assignee thereof, it being expressly agreed that any such return of capital or profits made pursuant
to the Trust Agreement shall be made solely from the assets of the Fund without any rights of contribution from the Sponsor or any other
Covered Person. A Covered Person shall not be liable for the conduct or willful misconduct of any administrator or other delegate selected
by the Sponsor with reasonable care, provided, however, that the Trustee and its Affiliates shall not, under any circumstances be liable
for the conduct or willful misconduct of any administrator or other delegate or any other person selected by the Sponsor to provide services
to the Trust.
The Trust Agreement also provides
that the Sponsor shall be indemnified by the Trust (or by a series separately to the extent the matter in question relates to a single
series or disproportionately affects a specific series in relation to other series) against any losses, judgments, liabilities, expenses
(excluding any taxes on the compensation received for services as Sponsor or on indemnity payments received), and amounts paid in settlement
of any claims sustained by it in connection with its activities for the Trust, provided that (i) the Sponsor was acting on behalf of or
performing services for the Trust and has determined, in good faith, that such course of conduct was in the best interests of the Trust
and such liability or loss was not the result of gross negligence, willful misconduct, or a breach of the Trust Agreement on the part
of the Sponsor and (ii) any such indemnification will only be recoverable from the assets of the applicable series. The Sponsor’s
rights to indemnification permitted under the Trust Agreement shall not be affected by the dissolution or other cessation to exist of
the Sponsor, or the withdrawal, adjudication of bankruptcy or insolvency of the Sponsor, or the filing of a voluntary or involuntary petition
in bankruptcy under Title 11 of the Bankruptcy Code by or against the Sponsor.
Notwithstanding the above,
the Sponsor shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of U.S. federal
or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee and the court approves the indemnification of such expenses (including, without limitation,
litigation costs), (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular
indemnitee and the court approves the indemnification of such expenses (including, without limitation, litigation costs), or (iii) a court
of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement
and related costs should be made.
The payment of any indemnification
shall be allocated, as appropriate, among the Trust’s series. The Trust and its series shall not incur the cost of that portion
of any insurance which insures any party against any liability, the indemnification of which is prohibited under the Trust Agreement.
Expenses incurred in defending
a threatened or pending action, suit or proceeding against the Sponsor shall be paid by the Trust in advance of the final disposition
of such action, suit or proceeding, if (i) the legal action relates to the performance of duties or services by the Sponsor on behalf
of the Trust; (ii) the legal action is initiated by a party other than the Trust; and (iii) the Sponsor undertakes to repay the advanced
funds with interest to the Trust in cases in which it is not entitled to indemnification.
The Trust Agreement provides
that the Sponsor and the Trust shall indemnify the Trustee and its successors, assigns, legal representatives, officers, directors, Shareholders,
employees, agents and servants (the “Trustee Indemnified Parties”) against any liabilities, obligations, losses, damages,
penalties, taxes (excluding any taxes on the compensation received for services as Trustee or on indemnity payments received), claims,
actions, suits, costs, expenses or disbursements which may be imposed on a Trustee Indemnified Party relating to or arising out of the
formation, operation or termination of the Trust, the execution, delivery and performance of any other agreements to which the Trust is
a party, or the action or inaction of the Trustee under the Trust Agreement or any other agreement, except for expenses resulting from
the gross negligence or willful misconduct of a Trustee Indemnified Party. Further, certain officers of the Sponsor are insured against
liability for certain errors or omissions which an officer may incur or that may arise out of his or her capacity as such.
In the event the Trust is
made a party to any claim, dispute, demand or litigation or otherwise incurs any liability or expense as a result of or in connection
with any Shareholder’s (or assignee’s) obligations or liabilities unrelated to the Trust business, such Shareholder (or assignees
cumulatively) is required under the Trust Agreement to indemnify the Trust for all such liability and expense incurred, including attorneys’
and accountants’ fees.
Fiduciary and Regulatory Duties of the
Sponsor and the Trustee
The Trust Agreement modifies
and restricts the default fiduciary duties and restrictions under Delaware law typically imposed on “fiduciaries” in accordance
with the DSTA. Under Delaware law, the general fiduciary duties that would apply to the Sponsor are defined and limited in scope by the
Trust Agreement (to which terms all Shareholders, by purchasing Shares, are deemed to consent). That notwithstanding, the Sponsor is a
registered investment adviser under the Advisers Act and is subject to the fiduciary duties associated therewith. The Trustee is a fiduciary
under the Trust Agreement and must satisfy the requirements of Section 3807 of the Delaware Trust Statute. However, the fiduciary
duties, responsibilities and liabilities of the Trustee are limited by, and are only those specifically set forth in, the Trust Agreement.
The Trust Agreement provides
that in addition to any other requirements of applicable law, a Shareholder may bring a derivative action on behalf of the Trust only
if the following conditions are met: (i) the Shareholder or Shareholders must make a pre-suit demand upon the Sponsor to bring the subject
action unless an effort to cause the Sponsor to bring such an action is not likely to succeed; and a demand on the Sponsor shall only
be deemed not likely to succeed and therefore excused if the Sponsor has a personal financial interest in the transaction at issue, and
the Sponsor shall not be deemed interested in a transaction or otherwise disqualified from ruling on the merits of a Shareholder demand
by virtue of the fact that the Sponsor receives remuneration for its service as the Sponsor or as a sponsor of one or more companies that
are under common management with or otherwise affiliated with the Trust; and (ii) unless a demand is not required under clause (i) of
this paragraph, the Sponsor must be afforded a reasonable amount of time to consider such Shareholder request and to investigate the basis
of such claim; and the Sponsor shall be entitled to retain counsel or other advisors in considering the merits of the request and may
require an undertaking by the Shareholders making such request to reimburse the Trust for the expense of any such advisors in the event
that the Sponsor determines not to bring such action.
Actions Taken to Protect the Trust
The Sponsor is authorized
to and may, in its own discretion, prosecute, defend, settle or compromise actions or claims at law or in equity that it considers necessary
or proper to protect the Trust or the interests of the Shareholders. The expenses incurred by the Sponsor in connection therewith (including
the fees and disbursements of legal counsel) will be expenses of the Trust and are deemed to be Additional Trust Expenses. The Sponsor
will be entitled to be reimbursed for the Additional Trust Expenses.
Successor Sponsors
If the Sponsor is adjudged
bankrupt or insolvent, the Trustee may terminate and liquidate the Trust and distribute its remaining assets. Neither the Trustee nor
the Administrator has any obligation to appoint a successor sponsor or to assume the duties of the Sponsor and will have no liability
to any person because the Trust is or is not terminated as described in the preceding sentence.
Withdrawal of the Sponsor
The Sponsor may withdraw voluntarily
as the Sponsor of the Trust only upon ninety (90) days’ prior written notice to the holders of the Trust’s outstanding Shares
and the Trustee. If the withdrawing Sponsor is the last remaining Sponsor, Shareholders holding a majority (over 50%) of the outstanding
Shares of the Fund, voting together as a single class (not including Shares acquired by the Sponsor through its initial capital contribution)
may vote to elect a successor Sponsor. The successor Sponsor will continue the business of the Trust. Shareholders have no right to remove
the Sponsor.
In the event of withdrawal,
the Sponsor is entitled to a redemption of the Shares it acquired through its initial capital contribution to any of the series of the
Trust at their NAV per Share. If the Sponsor withdraws and a successor Sponsor is named, the withdrawing Sponsor shall pay all expenses
as a result of its withdrawal.
Limitation on Trustee’s Liability
Under the Trust Agreement,
the Sponsor has exclusive control of the management of all aspects of the activities of the Trust and the Trustee has only nominal duties
and liabilities to the Trust. The Trustee is appointed to serve as the trustee for the sole purpose of satisfying Section 3807(a)
of the DSTA which requires that the Trust have at least one trustee with a principal place of business in the State of Delaware. The duties
of the Trustee are limited to (i) accepting legal process served on the Trust in the State of Delaware, (ii) the execution of
any certificates required to be filed with the Delaware Secretary of State which the Trustee is required to execute under the DSTA, and
(iii) any other duties specifically allocated to the Trustee in the Trust Agreement.
To the extent the Trustee
has duties (including fiduciary duties) and liabilities to the Trust or the Shareholders under the DSTA, such duties and liabilities will
be replaced by the duties and liabilities of the Trustee expressly set forth in the Trust Agreement. The Trustee will have no obligation
to supervise, nor will it be liable for, the acts or omissions of the Sponsor, Transfer Agent, Administrator, Custodians or any other
person. Neither the Trustee, either in its capacity as trustee or in its individual capacity, nor any director, officer or controlling
person of the Trustee is, or has any liability as, the issuer, director, officer or controlling person of the issuer of Shares. The Trustee’s
liability is limited solely to the express obligations of the Trustee as set forth in the Trust Agreement.
Under the Trust Agreement,
the Sponsor has the exclusive management, authority and control of all aspects of the activities of the Trust. The Trustee has no duty
or liability to supervise or monitor the performance of the Sponsor, nor does the Trustee have any liability for the acts or omissions
of the Sponsor. The existence of a trustee should not be taken as an indication of any additional level of management or supervision over
the Trust. The Trust Agreement provides that the management authority with respect to the Trust is vested directly in the Sponsor. The
Trust Agreement provides that the Trustee is not responsible or liable for the form, character, genuineness, sufficiency, value or validity
of any of the assets of the Trust.
Holding of Trust Property
The Trust will hold and record
the ownership of the Fund’s assets in a manner such that it will be owned for the benefit of the Fund’s Shareholders for the
purposes of, and subject to and limited by the terms and conditions set forth in, the Trust Agreement. Other than issuance of the Shares,
the Trust will not create, incur or assume any indebtedness or borrow money from or loan money to any person. The Trustee may not commingle
its assets with those of any other person.
The Trustee may employ agents,
attorneys, accountants, auditors and nominees and will not be answerable for the conduct or misconduct of any such custodians, agents,
attorneys or nominees if such custodians, agents, attorney and nominees have been selected with reasonable care.
Resignation, Discharge or Removal of Trustee;
Successor Trustees
The Trustee may resign as
Trustee by written notice of its election so to do, delivered to the Sponsor with at least 60 days’ notice. The Sponsor may remove
the Trustee in its discretion ; provided, that such resignation shall not become effective unless and until a successor Trustee shall
have been appointed by the Sponsor in accordance with Section 2.5 of the Trust Agreement. If the Trustee resigns or is removed, the Sponsor,
acting on behalf of the Shareholders, shall appoint a successor trustee. The successor Trustee will become fully vested with all of the
rights, powers, duties and obligations of the outgoing Trustee.
Amendments to the Trust Agreement
The Sponsor may, without the
approval of the Shareholders, amend or supplement the Trust Agreement; provided, however, that the Shareholders shall have the right to
vote on any amendment (i) if expressly required under Delaware or federal law or regulations or rules of any exchange, (ii) submitted
to them by the Sponsor in its sole discretion, or (iii) if it would impair the right of a Shareholders to surrender baskets of Shares
and receive the amount of Trust property represented. The Sponsor shall provide notice of any amendment to the Shareholders setting forth
the substance of the amendment and its effective date. Upon amendment of the Trust Agreement, the Certificate of Trust shall also be amended,
if required by the Delaware Trust Statute, to reflect such change.
No amendment shall be made
to the Trust Agreement without the consent of the Trustee if it reasonably believes that such amendment adversely affects any of the rights,
duties or liabilities of the Trustee. At the expense of the Sponsor, the Trustee shall execute and file any amendment to the Certificate
of Trust if so directed by the Sponsor or if such amendment is required in the opinion of the Trustee.
The Trustee shall be under
no obligation to execute any amendment to the Trust Agreement or to any agreement to which the Trust is a party until it has received
an instruction letter from the Sponsor, in form and substance reasonably satisfactory to the Trustee (i) directing the Trustee to execute
such amendment, (ii) representing and warranting to the Trustee that such execution is authorized and permitted by the terms of the Trust
Agreement and (if applicable) such other agreement to which the Trust is a party and does not conflict with or violate any other agreement
to which the Trust is a party and (iii) confirming that such execution and acts related thereto are covered by the indemnity provisions
of the Trust Agreement in favor of the Trustee; provided that the Trustee shall in no circumstance be obligated to execute any agreement
to which the Trust is a party if the Sponsor may execute such Agreement on behalf of the Trust.
No provision of the Trust
Agreement may be amended, waived or otherwise modified orally but only by a written instrument adopted in accordance with Section 11 of
the Trust Agreement.
Termination of the Trust
Pursuant to the terms of the
Trust Agreement, the Trust will dissolve if any of the following events occur:
| ● | a certificate of dissolution or revocation of the Sponsor’s charter is filed (and 90 days have passed
after the date of notice to the Sponsor of revocation without a reinstatement of its charter) or upon the withdrawal, removal, adjudication
or admission of bankruptcy or insolvency of the Sponsor, or an event of withdrawal unless (i) at the time there is at least one remaining
Sponsor or (ii) within 90 days of such event of withdrawal Shareholders holding at least a majority of the Shares (not including
Shares held by the Sponsor and its affiliates) agree in writing to continue the Trust and to select, effective as of the date of such
event, one or more successor Sponsors; |
| ● | the occurrence of any event which would make the existence of the Trust unlawful; |
| ● | in the event of the suspension, revocation or termination of the Sponsor’s registration as a CPO,
or membership as a CPO with the CFTC or NFA (if, in either case, such registration is required at such time unless at the time there is
at least one remaining Sponsor whose registration or membership has not been suspended, revoked or terminated); |
| ● | the Trust becomes insolvent or bankrupt; |
| ● | shareholders holding at least 75% of the then outstanding Shares notify the Sponsor that they elect to
dissolve the Trust, written notice of which is sent to the Sponsor not less than 90 days prior to the effective date of dissolution; |
| ● | upon written notice to the Trustee and the Shareholders by the Sponsor, the Sponsor determines that the
size of the Trust Estate in relation to the expenses of the Trust make it unreasonable or imprudent to continue the Trust; |
| ● | the Trust is required to be registered as an investment company under the Investment Company Act of 1940;
or |
| ● | DTC is unable or unwilling to continue to perform its functions, and a comparable replacement is unavailable. |
The death, legal disability,
bankruptcy, insolvency, dissolution, or withdrawal of any Shareholder (as long as such Shareholder is not the sole Shareholder of the
Trust) shall not result in the termination of the Trust, and such Shareholder, his estate, custodian or personal representative shall
have no right to withdraw or value such Shareholder’s Shares. Each Shareholder (and any assignee thereof) expressly agrees that
in the event of his death, he waives on behalf of himself and his estate, and he directs the legal representative of his estate and any
person interested therein to waive the furnishing of any inventory, accounting or appraisal of the assets of the Trust and any right to
an audit or examination of the books of the Trust, except for such rights as are set forth in Article IX of the Trust Agreement relating
to the books of account and reports of the Trust.
If the Trust is forced to
liquidate, the Trust will be liquidated under the Sponsor’s direction. The proceeds therefrom will be applied and distributed in
the following order of priority: (a) to the expenses of liquidation and termination and to creditors, including Shareholders who
are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the Trust other than liabilities for distributions
to Shareholders and (b) to the Shareholders pro rata in accordance with the respective percentages of Shares that they hold. It is
expected that the Sponsor would be subject to the same regulatory requirements as the Trust, and therefore, the markets available to the
Sponsor will be the same markets available to the Trust.
[Governing Law; Consent to New York Jurisdiction
The Trust Agreement and the
rights of the Sponsor, Trustee, DTC and Shareholders under the Trust Agreement are governed by the laws of the State of Delaware. The
Non-Digital Custody Agreement, each Bitcoin Custody Agreement and Authorized Purchaser Agreements are governed by the laws of the state
of New York. The Sponsor, the Trustee and DTC and, by accepting Shares, each DTC Participant and each Shareholder, consent to the jurisdiction
of the courts of the State of New York and any federal courts located in the borough of Manhattan in New York City.]
plan
of distribution
Most investors buy and sell
Shares in the secondary market through brokers. Shares trade on the Exchange under the ticker symbol “BTCK”. Shares are bought
and sold throughout the trading day like other publicly traded securities. When buying or selling Shares through a broker, Shareholders
may incur customary brokerage commissions and/or fees. Shareholders are encouraged to review the terms of their brokerage accounts for
details regarding applicable charges/fees.
The Fund issues shares continuously
by offering Baskets consisting of [10,000] Shares to Authorized Purchasers. Authorized Purchasers pay a transaction fee for each order
they place to purchase or redeem one or more Baskets. The Sponsor believes that a Basket size of [10,000] Shares will effectively enable
Authorized Purchasers to manage inventory of Shares and facilitate an effective arbitrage mechanism for the Fund. However, the Sponsor
may adjust the size of the Baskets in order to improve the effectiveness of the activities of Authorized Purchasers in the secondary market
for Shares if it deems it necessary or advisable to do so. The Fund does not issue fractions of a Basket.
Because new Shares can be
created and issued on an ongoing basis, at any point during the life of the Trust, a “distribution,” as such term is used
in the Securities Act, will be occurring. Authorized Purchasers, other broker-dealers and other persons are cautioned that some of their
activities will result in their being deemed participants in a distribution in a manner which would render them statutory underwriters
and subject them to the prospectus delivery and liability provisions of the Securities Act. Any purchaser who purchases Shares with a
view towards distribution of such Shares may be deemed to be a statutory underwriter. In addition, an Authorized Purchaser, other broker-dealer
firm or its client will be deemed a statutory underwriter if it purchases a Basket from the Fund, breaks the Basket down into the constituent
Shares and sells the Shares to its customers; or if it chooses to couple the creation of a supply of new Shares with an active selling
effort involving solicitation of secondary market demand for the Shares. In contrast, Authorized Purchasers may engage in secondary market
or other transactions in Shares that would not be deemed “underwriting.” For example, an Authorized Purchaser may act in the
capacity of a broker or dealer with respect to Shares that were previously distributed by other Authorized Purchasers. A determination
of whether a particular market participant is an underwriter must take into account all the facts and circumstances pertaining to the
activities of the broker-dealer or its client in the particular case, and the examples mentioned above should not be considered a complete
description of all the activities that would lead to designation as an underwriter and subject them to the prospectus-delivery and liability
provisions of the Securities Act.
The offering of Baskets is
being made in compliance with Conduct Rule 2310 of FINRA. Accordingly, Authorized Purchasers will not make any sales to any account over
which they have discretionary authority without the prior written approval of a purchaser of Shares.
Dealers that are not “underwriters”
but are participating in a distribution (as contrasted to ordinary secondary trading transactions), and thus dealing with Shares that
are part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities Act, would be unable to take
advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act.
An Authorized Purchaser may
be indemnified by the Sponsor under certain circumstances, they will not be entitled to receive a discount or commission from the Fund
or the Sponsor for their purchases of Baskets.
Additional
Information Regarding the Shares
Book-Entry Form
Individual certificates will
not be issued for the Shares. Instead, one or more global certificates have been deposited by the Transfer Agent with DTC and registered
in the name of Cede & Co., as nominee for DTC. The global certificates will evidence all of the Shares outstanding at any time.
Under the Trust Agreement, Shareholders are limited to (1) DTC Participants such as banks, brokers, dealers and trust companies,
(2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant (“Indirect Participants”),
and (3) those banks, brokers, dealers, trust companies and others who hold interests in the Shares through DTC Participants or Indirect
Participants. The Shares are transferable only through the book-entry system of DTC. Shareholders who are not DTC Participants may transfer
their Shares through DTC by instructing the DTC Participant holding their Shares (or by instructing the Indirect Participant or other
entity through which their Shares are held) to transfer the Shares. Transfers will be made in accordance with standard securities industry
practice.
DTC will act as securities
depository for the Shares. DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing
agency” registered pursuant to the provisions of section 17A of the Exchange Act. DTC was created to hold securities of DTC
Participants and to facilitate the clearance and settlement of transactions in such securities among the DTC Participants through electronic
book-entry changes. This eliminates the need for physical movement of securities certificates. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom (and/or their representatives)
own DTC. Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or indirectly. DTC is expected to agree with and represent to
the DTC Participants that it will administer its book-entry system in accordance with its rules and by-laws and the requirements of law.
The rights of the Shareholders
generally must be exercised by DTC Participants acting on their behalf in accordance with the rules and procedures of DTC. Because the
Shares can only be held in book-entry form through DTC and DTC Participants, investors must rely on DTC, DTC Participants and any other
financial intermediary through which they hold the Shares to receive the benefits and exercise the rights described in this section. Investors
should consult with their broker or financial institution to find out about procedures and requirements for securities held in book-entry
form through DTC.
Transfer of Shares
The Shares are only transferable
through the book-entry system of DTC. Shareholders who are not DTC Participants may transfer their Shares through DTC by instructing the
DTC Participant holding their Shares (or by instructing the Indirect Participant or other entity through which their Shares are held)
to transfer the Shares. Transfers are made in accordance with standard securities industry practice.
Transfers of interests in
Shares with DTC are made in accordance with the usual rules and operating procedures of DTC and the nature of the transfer. DTC has established
procedures to facilitate transfers among the participants and/or account holders of DTC. Because DTC can only act on behalf of DTC Participants,
who in turn act on behalf of Indirect Participants, the ability of a person or entity having an interest in a global certificate to pledge
such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected
by the lack of a certificate or other definitive document representing such interest.
Share Splits
If the Sponsor believes that
the per Share price in the public market for Shares has risen or fallen outside a desirable trading price range, the Sponsor may direct
the Transfer Agent to declare a split or reverse split in the number of Shares outstanding and to make a corresponding change in the number
of Shares constituting a Basket.
CUSTODY
OF THE Fund’s ASSETS
General
The Fund’s assets will
be split among three custodians. The Trust, on behalf of the Fund, intends to appoint Gemini Trust Company, LLC (“Gemini”
or the “Bitcoin Custodian”) for the Fund’s bitcoin holdings. Separately, [____] (the “Non-Digital Custodian”
and collectively with the Bitcoin Custodian, the “Custodians”) will serve as the Fund’s custodian with respect to its
cash and cash equivalents investments, as well as any investments in connection with its exposure to Carbon Credit Futures.
The Fund may engage third-party
custodians or vendors besides the Bitcoin Custodian and the Non-Digital Custodian to provide custody and security services for all or
a portion of its bitcoin, cash, and investments in connection with its exposure to Carbon Credit Futures, and the Sponsor will pay the
custody fees and any other expenses associated with any such third-party custodian or vendor. The Sponsor is responsible for overseeing
the Bitcoin Custodian and Non-Digital Custodian, as well as the Fund’s other service providers.
The Non-Digital Custodian
[ ] serves as the Fund’s
custodian with respect to its cash and cash equivalents investments, as well as in connection with the Fund’s Carbon Credit Futures.
The Non-Digital Custodian will also help facilitate the movement of cash (and purchases and sales of assets associated therewith) in connection
with creation and redemption of Baskets. [Non-Digital Custodian principal address]. [Additional information to be provided regarding Non-Digital
Custody Agreement]. The Custody Agreement is governed by [ ] law.
The Bitcoin Custodian
The Trust, on behalf of the
Fund, intends to appoint Gemini for the custody of the Fund’s bitcoin.
The Trust, on behalf of the
Fund, has entered into a [ ] agreement with Gemini (the “Bitcoin Custody Agreement”), pursuant to which the Bitcoin Custodian
will custody all of the Fund’s bitcoin. Pursuant to the Bitcoin Custody Agreement, the Bitcoin Custodian establishes accounts that
hold the bitcoins deposited with the Bitcoin Custodian on behalf of the Fund. The Bitcoin Custody Agreement is governed by [ ]
law.
With respect to the
settlement of Shares in response to the placement of creation orders and redemption orders from Authorized Purchasers, to the extent
the Fund uses multiple Bitcoin Custodians, the Sponsor will retain discretion with respect to which of the Bitcoin Custodians and
accompanying assets is selected to facilitate the respective order.
Custody of Bitcoin
The Fund is responsible for
acquiring bitcoin from a Bitcoin Trading Counterparty. Once the bitcoin has been transferred to the Bitcoin Custodian, it will be stored
in accordance with the procedures of the Bitcoin Custodian described herein.
Pursuant to the terms of the
Bitcoin Custody Agreement, the Bitcoin Custodian will custody the Fund’s bitcoin in a segregated account from time to time (the
“Vault Balance”). The Bitcoin Custodian will keep a substantial portion of the private keys associated with the Fund’s
bitcoin in “cold storage” or similarly secure technology (the “Cold Vault Balance”), with any remainder of the
Vault Balance held as a “Hot Vault Balance.” The Sponsor expects that the Fund’s bitcoin and private keys will be held
in cold storage of the Bitcoin Custodian on an ongoing basis.
Custody of bitcoin typically
involves the generation, storage and utilization of private keys. These private keys are used to effect transfer transactions (i.e.,
transfers of bitcoin from an address associated with the private key to another address). Cold storage of private keys may involve keeping
such keys on a non-networked computer or electronic device or storing the private keys on a storage device or printed medium and deleting
the keys from all computers. Cold storage is a safeguarding method with multiple layers of protections and protocols, by which the private
key(s) corresponding to the Fund’s bitcoin is (are) generated and stored in an offline manner. Private keys are generated in offline
computers that are not connected to the internet so that they are resistant to being hacked. By contrast, in hot storage, the private
keys are held online, where they are more accessible, leading to more efficient transfers, though they are potentially more vulnerable
to being hacked. While the Bitcoin Custodian will generally keep all of the Fund’s bitcoin in cold storage on an ongoing basis,
it is possible that, from time to time, portions of the Fund’s bitcoin will be held outside of cold storage temporarily as part
of trade facilitation in connection with creations and redemptions of Baskets, to sell bitcoins including to pay Fund expenses, or to
pay the Management Fee, as necessary. The Fund’s bitcoin held in the Cold Vault Balance by the Bitcoin Custodian are held in segregated
wallets and therefore are not commingled with the Bitcoin Custodian’s or its other customer assets. [The private key materials are
stored within secure storage facilities within [ ]. For security reasons exact locations are never disclosed. A limited number of employees
at the Bitcoin Custodian are involved in private key management operations, and the Bitcoin Custodian has represented that no single individual
has access to full private keys.] No system is perfectly secure and loss or theft due to operational or other failure is always possible.
[Under the terms of the Bitcoin
Custody Agreement, the Sponsor maintains sole discretion in allocating bitcoin among the Hot Vault Balance and Cold Vault Balance. Neither
the Fund, the Sponsor, nor any other entity is permitted to lend, pledge, hypothecate or rehypothecate any of the Fund’s bitcoin.
The Bitcoin Custodian has also agreed in the Bitcoin Custody Agreement that it will not, directly or indirectly, lend, pledge, hypothecate
or rehypothecate any of the Fund’s bitcoin, and that the Fund’s bitcoin assets are not treated as general assets of the Bitcoin
Custodian but are instead considered custodial assets that remain the Fund’s property. Additionally, the Bitcoin Custodian has agreed
to provide the Fund or its authorized independent public accountant with confirmation of or access to information sufficient to confirm
the bitcoin held by the Bitcoin Custodian for the Fund and that the Fund’s bitcoin is held in a separate, segregated account under
the Fund’s name. Under the Bitcoin Custody Agreement, the Bitcoin Custodian is required to obtain and maintain, at its sole expense,
commercially reasonable insurance coverage for the custody services it provides to the Fund. The Bitcoin Custody Agreement does not require
that private key information with respect to the Fund’s bitcoin be kept in a particular physical location.]
[The Bitcoin Custodian may
receive deposits of bitcoin but may not send bitcoin without use of the corresponding private keys. In order to send bitcoin when the
private keys are kept in cold storage, unsigned transactions must be physically transferred to the offline cold storage facility and signed
using a software/hardware utility with the corresponding offline keys. At that point, the Bitcoin Custodian can upload the fully signed
transaction to an online network and transfer the bitcoin. Because the Bitcoin Custodian may need to retrieve private keys from offline
storage prior to initiating transactions, the initiation or crediting of withdrawals or other transactions may be delayed.]
Under the Gemini Bitcoin Custody
Agreement, Gemini’s liability is limited as follows, among others: [information to be provided.] [Information regarding items that
Gemini is not liable for to be provided]
[Insurance information for
the Bitcoin Custodian to be provided].
[Termination of Agreement
provisions for the Bitcoin Custody Agreement to be provided].
The Transfer Agent, in coordination
with the Non-Digital Custodian, will facilitate the settlement of Shares in response to the placement of creation orders and redemption
orders from Authorized Purchasers.
The Sponsor may, in its sole
discretion, add or terminate bitcoin custodians at any time. The Sponsor may, in its sole discretion, change the custodian for the Fund’s
bitcoin holdings, but it will have no obligation whatsoever to do so or to seek any particular terms for the Fund from other such custodians.
However, the Sponsor will enter into bitcoin custody arrangements with custodians that meet the Sponsor’s criteria, including an
agreement to maintain Fund assets in a segregated account, to maintain insurance and to store the Fund’s private keys in cold storage
or in such other manner as the Sponsor determines provides reasonable protection for the Fund’s assets from loss or theft.
THE
Fund’s Service providers
The Sponsor
The Sponsor is Tidal Investments
LLC (f/k/a Toroso Investments LLC), a Delaware limited liability company. The Sponsor’s principal place of business is 234 West
Florida Street, Suite 203, Milwaukee, Wisconsin 53204. The Sponsor arranged for the creation of the Trust and the Fund and is responsible
for the ongoing registration of the Shares for their public offering in the U.S. and the listing of Shares on the Exchange. The Sponsor
serves as the Fund’s CPO and is registered as a CPO and a CTA with the CFTC.
As consideration for its receipt
of the Management Fee from the Fund, the Sponsor is obligated to pay the Sponsor-paid Expenses. The Sponsor also paid the costs of the
Fund’s organization and will pay for the costs of the initial sale of the Shares. The Sponsor has agreed to pay certain operating
expenses out of the Sponsor’s unified management fee. The Fund is responsible for the payment of any litigation expenses, other
extraordinary expenses, and any transaction-based costs or expenses (e.g., brokerage commissions or mark-ups). For the Sponsor’s
services, the Fund is contractually obligated to pay a monthly management fee to the Sponsor, based on average daily net assets, at a
rate equal to [___] per annum. The Fund is newly organized and as of the date of this prospectus has not paid any management fees to the
Sponsor.
The Sponsor is generally
responsible for the administration of the Fund pursuant to the authorities granted to it under the Trust Agreement. This includes
(i) selecting and monitoring the Fund’s Service Providers and from time to time engaging additional, successor or
replacement Service Providers and (ii) upon dissolution of the Fund, distributing the Fund’s assets (or the value of such
assets, when liquidated) on a pro rata basis to the Shareholders in accordance with their Shares. In addition to the foregoing, the
Sponsor is responsible for management and conducts or directs the conduct of the business of the Trust, the Fund, and any series the
Trust that may from time to time be established and designated by the Sponsor. The Sponsor has the authority to oversee the purchase
and sale of Shares by Authorized Purchasers and to manage the Fund’s investments, including to evaluate the credit risk of
FCMs and to review daily positions and margin/collateral requirements. The Sponsor has the power to enter into agreements as may be
necessary or appropriate for the offer and sale of the Fund’s Shares and the conduct of the Trust’s activities.
The following is a biographical
summary of the business experience of each of the officers, directors and key employees of the Sponsor:
[Bios to be provided by pre-effective
amendment]
The following are individual
Principals, as that term is defined in CFTC Rule 3.1, for the Sponsor: [ ].
The Trustee
Wilmington Trust, National
Association, a national banking association, serves as Delaware trustee of the Trust under the Trust Agreement. The Trustee has its principal
office at 1100 North Market Street, Wilmington, Delaware 19890-0001. The Trustee is unaffiliated with the Sponsor. A copy of the Trust
Agreement is available for inspection at the Trustee’s principal office identified above.
The Trustee’s
Role
The Trustee will accept service
of legal process on the Trust in the State of Delaware and will make certain filings under the DSTA. The Trustee does not owe any other
duties to the Trust, the Sponsor or the Shareholders. Under the Trust Agreement, the Trustee has delegated to the Sponsor the exclusive
management and control of all aspects of the business of the Trust and the Fund. The Trustee has no duty or liability to supervise or
monitor the performance of the Sponsor, nor does the Trustee have any liability for the acts or omissions of the Sponsor. The Trustee
has not signed the registration statement of which this prospectus is a part and is not subject to issuer liability under the federal
securities laws for the information contained in this prospectus and under federal securities laws with respect to the issuance and sale
of the Shares. Under such laws, neither the Trustee, either in its capacity as Trustee or in its individual capacity, nor any director,
officer or controlling person of the Trustee is, or has any liability as, the issuer or a director, officer or controlling person of the
issuer of the Shares. Because the Trustee has no authority over the Trust’s operations, the Trustee itself is not registered in
any capacity with the CFTC.
The Trust Agreement provides
that the Trustee is entitled to reasonable compensation for its services from the Sponsor or an affiliate of the Sponsor (including the
Trust), and is indemnified by the Sponsor against any expenses it incurs relating to or arising out of the formation, operation or termination
of the Trust, or any action or inaction of the Trustee under the Trust Agreement, except to the extent that such expenses result from
the fraud, or the gross negligence or willful misconduct of the Trustee. The Sponsor has the discretion to replace the Trustee.
The Trustee is permitted to
resign upon at least sixty (60) days’ notice to the Sponsor. If no successor trustee has been appointed by the Sponsor within such
sixty-day period, the Trustee may, at the expense of the Trust, petition a court to appoint a successor.
The Trustee’s fees and
expenses under the Trust Agreement will be paid by the Sponsor.
The Administrator
The Administrator of the Fund
is Tidal ETF Services pursuant to the [ ] Agreement. The Administrator has its principal office at 234 West Florida Street, Suite 203,
Milwaukee, Wisconsin 53204. The Administrator is a wholly-owned subsidiary of the Sponsor. The Administrator has engaged [ ] to act as
Sub-Administrator. The Administrator assists the Fund and the Sponsor with certain functions and duties relating to administration, distribution
and marketing, which include the following: marketing and sales strategy, and marketing and distribution related services.
The Transfer Agent
[ ] serves as Transfer Agent
to the Fund, and has its principal offices at [ ]. The Transfer Agent holds the Shares in book-entry form. The Administrator directs the
Transfer Agent to credit or debit the number of Creation Baskets or Redemption Baskets to the applicable Authorized Purchaser. The Transfer
Agent will issue or cancel each Authorized Purchaser’s Creation Basket or Redemption Basket, as applicable. The Transfer Agent will
also assist with the preparation of Shareholders’ account and tax statements. The Transfer Agent Fee is a Sponsor-paid Expense to
be assumed and paid by the Sponsor.
The Custodians
The Fund’s assets will
be split among two custodians. The Trust, on behalf of the Fund, intends to appoint Gemini Trust Company, LLC for the Fund’s bitcoin
holdings. Separately, [____] will serve as the Fund’s custodian with respect to its cash and cash equivalents investments, as well
as any investments in connection with its exposure to Carbon Credit Futures.
Bitcoin Custodian
The Fund intends to appoint
Gemini Trust Company, LLC as the Fund’s Bitcoin Custodian, pursuant to its custodial agreement, to hold a portion of the Fund’s
bitcoin in accordance with the procedures outlined above in the section “Custody of the Fund’s Assets”. Gemini Trust
company, LLC has its principal offices at [______].
The Sponsor has evaluated
the Bitcoin Custodian’s policies, procedures, and controls for safekeeping, exclusively possessing, and controlling the Fund’s
bitcoin holdings and believes these are designed consistent with accepted industry practices to protect against theft, loss, and unauthorized
and accidental use of the private keys. Notwithstanding the Sponsor’s evaluation, the Sponsor does not control Bitcoin Custodian’s
operations or implementation of such policies, procedures and controls and there can be no assurance that they will actually work as designed
or prove to be successful in safeguarding the Fund’s assets against all possible sources of theft, loss or damage.
Non-Digital Custodian
[ ] serves as the Fund’s
custodian with respect to its investments in cash and cash equivalents, as well as the investments in Carbon Credit Futures. [ ] has its
principal offices at [ ].
Marketing Agent
[______________] serves as
Marketing Agent to the Fund, and has its principal offices at [___________]. [_____________] has entered into an agreement (the “Marketing
Agent Agreement”) with the Sponsor and the Trust, on behalf of the Fund, that requires the Marketing Agent to work with the Custodians
in connection with the receipt and processing of orders for Creation Baskets and Redemption Baskets, and the review and approval of all
Fund sales literature and advertising material. The Marketing Agent is a broker-dealer registered with the SEC and a member of FINRA.
Bitcoin Adviser
7RCC Global Inc. (“7RCC”)
serves as “Bitcoin Adviser” to the Fund and has its principal offices at [ ]. 7RCC specializes in developing solutions for
ESG-conscious investors to access blockchain and digital asset investments, leveraging its expertise in global financial markets, blockchain,
and digital asset technology, and carbon neutralization structures to deliver investment opportunities through ETFs and other structured
products. As Bitcoin Adviser, 7RCC is responsible for providing the Sponsor and Tidal with research and analysis regarding bitcoin, the
bitcoin markets and carbon neutralization structures for use in the operation and marketing of the Fund. 7RCC has no responsibility for
the investment or management of the Fund’s portfolio or for the overall performance or operation of the Fund.
Support Agreement
The Sponsor, Tidal, and Bitcoin
Adviser (collectively, the “Parties”) have entered into an agreement, as amended (the “Support Agreement”) that
sets forth the terms and conditions applicable to the launch, marketing, promotion, development, and ongoing operation of the Fund, as
well the respective rights in profits and obligations for expenses. Specifically, 7RCC and the Sponsor have experience in the digital
asset and exchange-traded fund industry, and seek to offer a fund offering bitcoin and Carbon Credit Futures exposure as part of their
long-term business goals.
The primary responsibilities
and rights of each Party under the Support Agreement, with respect to the Fund are described below:
| ● | The Sponsor will serve as the sponsor of the Fund as a series of the Trust, as described in this prospectus. |
| ● | Administrator will provide fund administration and related services for the Fund. |
| ● | 7RCC will provide to the Sponsor research and analysis regarding bitcoin and bitcoin markets for use in
the operation and marketing of the Fund. |
| ● | After a deduction of operational costs from the Management Fee, 7RCC will receive the benefit of any resulting
profits and will be responsible for paying any losses. |
Commodity Trading Advisor
Currently, the Sponsor does
not employ commodity trading advisors for the Fund. If, in the future, the Sponsor does employ commodity trading advisors, it will choose
each advisor based on arm’s length negotiations and will consider the advisor’s experience, fees, and reputation.
AUTHORIZED
Purchasers
An Authorized Purchaser must
enter into an “Authorized Purchaser Agreement” with the Sponsor and the Trust, on behalf of the Fund, to govern its placement
of orders to create and redeem Baskets. The Authorized Purchaser Agreement sets forth the procedures for the creation and redemption of
Baskets. The Authorized Purchaser Agreement also provides the Sponsor and the Administrator with the authority to terminate the relationship
with an Authorized Purchaser if the Sponsor or Administrator determines that an Authorized Purchaser does not to comply with the regulatory
and registration requirements promulgated by FinCEN or other state authorities. Each Authorized Purchaser must (i) be a registered
broker-dealer and (ii) enter into an Authorized Purchaser Agreement with the Sponsor, the Administrator and the Marketing Agent.
A list of the current Authorized
Purchasers can be obtained from the Sponsor. The Trust, on behalf of the Fund, has engaged [ ] as Authorized Purchasers. Additional Authorized
Purchasers may be added at any time, subject to the discretion of the Sponsor.
CALCULATION
OF NAV
Calculating the Fund’s
NAV per Share
The Fund’s NAV per Share
is calculated by:
| ● | taking the current market value of its total assets; |
| ● | subtracting any liabilities; and |
| ● | dividing that total by the total number of outstanding Shares. |
The Administrator calculates
the NAV of the Fund once each trading day. It will calculate the ANV as of the earlier of the close of the NYSE or 4:00 p.m. (ET). The
NAV for a normal trading day will be released after 4:00 p.m. (ET).
To the extent there are any
determinations that the Sponsor and the Administrator make, such determinations will be made in good faith upon the basis of, and neither
the Sponsor nor the Administrator will be liable for any errors contained in, information reasonably available. Neither the Sponsor nor
the Administrator will be liable to The Depository Trust Company (“DTC”), Authorized Purchasers, the Shareholders or any other
person for errors in judgment. The Fund’s daily activities are generally not reflected in the NAV determined for the Business Day
on which the transactions are effected (the trade date), but rather on the following Business Day.
The Sponsor has the exclusive
authority to determine the NAV of the Fund. The Sponsor has delegated to the Administrator the responsibility to calculate the NAV and
NAV per Share of the Fund, based on a pricing source selected by the Sponsor. The Administrator will determine the NAV of the Fund each
business day. In determining the NAV of the Fund, the Administrator ordinarily values the bitcoin held by the Fund using the same methodology
utilized by the Index in determining the Bitcoin Price, as detailed herein, unless otherwise determined by the Sponsor in its sole discretion.
If the Bitcoin Price is not available or the Sponsor in its sole discretion determines that the Bitcoin Price should not be used, the
Fund’s holdings may be fair valued in accordance with the policy approved by the Sponsor. The Sponsor does not anticipate that the
need to “fair value” bitcoin will be a common occurrence. The value of the futures contracts held by the Fund will be based
on market prices as of the time the NAV is calculated on each trading day.
The Sponsor reserves the right
to adjust the Share price of the Fund in the future to maintain convenient trading ranges for Shareholders. Any adjustments would be accomplished
through stock splits or reverse stock splits. Such splits would decrease (in the case of a split) or increase (in the case of a reverse
split) the proportionate NAV per Share but would have no effect on the net assets of the Fund or the proportionate voting rights of Shareholders
or the value of any Shareholder’s investment.
Valuation of the Fund’s
Assets
As discussed above, value
of bitcoin is determined by the value that various market participants place on bitcoin through their transactions. On exchanges, bitcoin
is traded with publicly disclosed valuations for each executed trade, measured by one or more fiat currencies such as the U.S. dollar.
The Fund uses the same methodology as the Index to determine the Bitcoin Price for purposes of NAV. The Index requires each exchange used
to calculate the price of bitcoin to meet certain criteria, and the exchanges qualifying under such criteria are used to calculate the
Bitcoin Price. Vinter reviews the spot price on all eligible exchanges at 4:00 p.m. eastern and values bitcoin as the median spot price
amongst these exchanges. The Sponsor believes this methodology provides a reasonable valuation of the spot price of bitcoin that is reasonably
resistant to price manipulation of Bitcoin. The value of the futures contracts held by the Fund will be based on market prices as of the
time the NAV is calculated on each trading day. The Sponsor may determine to a price used for one or more of the futures contracts utilized
by the Fund may need to be fair valued in accordance with the policy approved by the Sponsor.
Intraday Indicative Value
The NAV for a normal trading
day will be released after 4:00 p.m. ET. Trading during the core trading session on [ ] typically closes at 4:00 p.m. ET. However, NAVs
are not officially struck until later in the day. The pause between 4:00 p.m. ET and 5:30 p.m. ET (or later) provides an opportunity to
algorithmically detect, flag, investigate, and correct unusual pricing should it occur.
In addition, in order to provide
updated information relating to the Fund for use by Shareholders and market professionals, [ ] will calculate and disseminate throughout
the core trading session on each trading day an updated intraday indicative value (“IIV”). The IIV will be calculated by using
the prior day’s closing NAV per Share of the Fund as a base and updating that value throughout the trading day to reflect changes
in the most recently reported price level of the Fund’s assets.
The IIV disseminated during
the Exchange core trading session hours should not be viewed as an actual real time update of the NAV, because NAV per Share is calculated
only once at the end of each trading day based upon the relevant end of day values of the Fund’s investments. The IIV will be disseminated
on a per Share basis every 15 seconds during regular Exchange core trading session hours of 9:30 a.m. ET to 4:00 p.m. ET. [ ] will disseminate
the IIV value through the facilities of CTA/CQ High Speed Lines. In addition, the indicative fund value will be published on the Exchange’s
website and will be available through on-line information services such as Bloomberg and Reuters. The real-time version of the value of
the Index will be disseminated once every 15 seconds during the core trading session. The IIV may differ from the NAV due to the differences
in the time window of trades used to calculate each price (the NAV uses a sixty-minute window, whereas the IIV draws prices from the last
trade on each exchange in an effort to produce a relevant, real-time price). The Sponsor does not believe this will cause confusion in
the marketplace, as Authorized Purchasers are the only Shareholders who interact with the NAV and the Sponsor will communicate its NAV
calculation methodology clearly.
There are many instances in
the market today where the IIV and the NAV of an ETF are subtly different, whether due to the calculation methodology, market hours overlap
or other factors. The Sponsor has seen limited or no negative impact on trading, liquidity or other factors for exchange-traded funds
in this situation. The Sponsor believes that the IIV will closely track the globally integrated bitcoin price as reflected on the contributing
Bitcoin Platforms.
Dissemination of the IIV provides
additional information that is not otherwise available to the public and is useful to Shareholders and market professionals in connection
with the trading of the Fund’s Shares on the Exchange. Shareholders and market professionals will be able throughout the trading
day to compare the market price of the Fund and the IIV. If the market price of the Fund’s Shares diverges significantly from the
IIV, market professionals will have an incentive to execute arbitrage trades. For example, if the Fund appears to be trading at a discount
compared to the IIV, a market professional could buy the Fund’s Shares on the Exchange and sell short futures contracts. Such arbitrage
trades can tighten the tracking between the market price of the Fund and the IIV and thus can be beneficial to all market participants.
Calculation of Principal
Market NAV and Principal Market NAV per Share
The Fund’s periodic
financial statements may not utilize the NAV of the Fund determined by reference to the Index to the extent the methodology used to calculate
the Bitcoin Price is deemed not to be consistent with GAAP. The Fund’s periodic financial statements will be prepared in accordance
with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 820, “Fair Value Measurements
and Disclosures” (“ASC Topic 820”) and utilize an exchange-traded price from the Fund’s principal market for bitcoin
on the Fund’s financial statement measurement date. The Sponsor will determine in its sole discretion the valuation sources and
policies used to prepare the Fund’s financial statements in accordance with GAAP. [The Fund intends to engage a third-party vendor
to obtain a price from a principal market for bitcoin, which will be determined and designated by such third-party vendor daily based
on its consideration of several exchange characteristics, including oversight, and the volume and frequency of trades]. Under GAAP, such
a price is expected to be deemed a Level 1 input in accordance with the ASC Topic 820 because it is expected to be a quoted price in active
markets for identical assets or liabilities.
To determine which market
is the Fund’s principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating
the Fund’s financial statements, the Fund follows ASC 820-10, which outlines the application of fair value accounting. ASC 820-10
determines fair value to be the price that would be received for bitcoin in a current sale, which assumes an orderly transaction between
market participants on the measurement date. ASC 820-10 requires the Fund to assume that bitcoin is sold in its principal market to market
participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers
in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Fund may transact
through Bitcoin Trading Counterparties, in multiple markets, and its application of ASC 820-10 reflects this fact. The Fund anticipates
that, while multiple venues and types of markets will be available to the Bitcoin Trading Counterparties from whom the Sponsor acquires
or disposes of the Fund’s bitcoin, the principal market in each scenario is determined by looking at the market-based level of volume
and bitcoin trading activity. Bitcoin Trading Counterparties, may transact in a Brokered Market, a Dealer Market, Principal-to-Principal
Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary. The Fund determines its principal market (or in the absence
of a principal market the most advantageous market) on a quarterly basis to determine which market is its Principal Market for the purpose
of calculating fair value for the creation of quarterly and annual financial statements.
The process that the Sponsor
has developed for identifying a principal market, as prescribed in ASC 820-10, which outlines the application of fair value accounting.
The process begins by identifying publicly available, well established and reputable bitcoin trading venues (Exchange Markets, as defined
in the FASB ASC Master Glossary), which are selected by the Sponsor and its affiliates in their sole discretion. The Sponsor then, through
a service provider, calculates on each valuation period, the highest volume venue during the 60 minute period prior to 4:00 ET for bitcoin.
The Sponsor then identifies that market as the principal market for bitcoin during that period, and uses the price for bitcoin from that
venue at 4:00 ET as the principal market price.
conflicts
of interest
General
There are present and potential
future conflicts of interest in the Fund’s structure and operation you should consider before you purchase Shares. The Sponsor will
use this notice of conflicts as a defense against any claim or other proceeding made. If the Sponsor is not able to resolve these conflicts
of interest adequately, it may impact the Fund’s ability to achieve its investment objectives.
The officers, directors and
employees of the Sponsor do not devote their time exclusively to the Fund. These persons are directors, officers or employees of other
entities, or otherwise work in respect of other clients, which may compete with the Fund for their services. They could have a conflict
between their responsibilities to the Fund and to those other entities.
[The Sponsor has adopted policies
and procedures that identify the conflicts of interest associated with these companies and their principals, officers, directors and employees
when and if trading bitcoin or bitcoin-linked derivatives as well as Carbon Credit Futures and any associated derivatives therewith. These
policies are intended to prevent conflicts of interest occurring where the Sponsor or their principals, officers, directors or employees
could give preferential treatment to their own accounts or trade their own accounts ahead of or against the Trust.]
The Sponsor has sole current
authority to manage the investments and operations of the Fund, and this may allow it to act in a way that furthers its own interests
which may create a conflict with a Shareholder’s best interests. Shareholders have very limited voting rights, which will limit
their ability to influence matters such as amendment of the Trust Agreement, change in the Fund’s basic investment policy, dissolution
of the Fund, or the sale or distribution of the Fund’s assets.
The Sponsor serves as the
sponsor to the Fund. The Sponsor may have a conflict to the extent that its trading decisions for the Fund may be influenced by the effect
they would have on the other funds it manages. In addition, the Sponsor may be required to indemnify its officers, directors and key employees
with respect to their activities on behalf of the other funds, if the need for indemnification arises. This potential indemnification
could cause the Sponsor’s assets to decrease. If the Sponsor’s other sources of income are not sufficient to compensate for
the indemnification, it could cease operations, which could in turn result in Fund losses and/or termination of the Fund.
Resolution of Conflicts
The Sponsor has not established
formal procedures to resolve all potential conflicts of interest. Consequently, investors may be dependent on the good faith of the respective
parties subject to such conflicts to resolve them equitably. Although the Sponsor attempts to monitor these conflicts, it is extremely
difficult, if not impossible, for the Sponsor to ensure that these conflicts do not, in fact, result in adverse consequences to the Trust.
The Trust Agreement provides that whenever a conflict
of interest exists between the Sponsor or any of its affiliates, on the one hand, and the Trust or any Shareholders or any other person,
on the other hand, the Sponsor will resolve such conflict of interest considering the relative interest of each party (including its own
interest) and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable accepted
accounting practices or principles. In the absence of fraud, gross negligence or willful misconduct by the Sponsor, the resolution, action
or terms so made, taken or provided by the Sponsor shall not constitute a breach of this Trust Agreement or any other agreement contemplated
herein or of any duty or obligation of the Sponsor at law or in equity or otherwise.
material
contracts
[to be provided by pre-effective
amendment]
privacy
policy
The Trust and the Sponsor
may collect or have access to certain nonpublic personal information about current and former investors. Nonpublic personal information
may include information received from investors, such as a investor’s name, social security number and address, as well as information
received from brokerage firms about investor holdings and transactions in Shares of the Fund.
The Fund and the Sponsor do
not disclose nonpublic personal information except as required by law or as described in their Privacy Policy. In general, the Fund and
the Sponsor restrict access to the nonpublic personal information they collect about investors to those of their and their affiliates’
employees and service providers who need access to such information to provide products and services to investors.
The Fund and the Sponsor maintain
safeguards that comply with federal law to protect investors’ nonpublic personal information. These safeguards are reasonably designed
to (1) ensure the security and confidentiality of investors’ records and information, (2) protect against any anticipated threats
or hazards to the security or integrity of investors’ records and information, and (3) protect against unauthorized access to or
use of investors’ records or information that could result in substantial harm or inconvenience to any investor.
Third-party service providers
with whom the Fund and the Sponsor share nonpublic personal information about investors must agree to follow appropriate standards of
security and confidentiality, which includes safeguarding such nonpublic personal information physically, electronically and procedurally.
A copy of the Sponsor’s
current Privacy Policy, which is applicable to the Fund, is provided to investors annually and is also available at [ ].
EXPENSES
Expenses to Be Paid by the Sponsor
The Sponsor has agreed to
assume the following fees and expenses incurred by the Trust: the Marketing Fee, the Administrator Fee, each respective Custodian Fee,
the Transfer Agent Fee, the Trustee fee, applicable license fees, including the licensing fees related to the Index License Agreement,
fees and expenses related to public trading of the Shares on the Exchange (including marketing, legal and audit fees and expenses), legal
expenses, audit fees, regulatory fees, including any fees relating to the registration of the Shares with the SEC, printing and mailing
costs and costs of maintaining the Fund’s website.
Extraordinary and Other Expenses
In certain extraordinary circumstances,
the Fund may pay expenses in addition to the Management Fee, including, but not limited to, any expenses of the Fund that are not assumed
by the Sponsor, taxes and governmental charges, expenses and costs of any extraordinary services performed by the Sponsor (or any other
Service Provider) on behalf of the Fund, indemnification expenses of the Bitcoin Custodian and/or Non-Digital Custodian, Administrator
or other agents, service providers or counterparties of the Fund and extraordinary legal fees and expenses, and all other transaction
related fees and expenses charged in connection with trading activities for the Fund’s investments and for maintenance of its CFTC
regulatory status as a commodity pool (collectively, “Additional Fund Expenses”). When Additional Fund Expenses are incurred,
the Fund will be required to pay these Additional Fund Expenses too. Although the Sponsor cannot definitively state the frequency or magnitude
of the Additional Fund Expenses, with the exception of transaction related fees and expenses and for maintenance of its CFTC regulatory
status as a commodity pool, the Sponsor expects that they may occur infrequently, if at all.
Payment of Expenses
To pay the Management Fee,
the Sponsor, in its discretion, may accept either bitcoin and/or cash. In the event the Sponsor is paid in bitcoin, the Administrator
and/or the Sponsor will direct the Bitcoin Custodian to transfer bitcoin from the [Fund Bitcoin Accounts], as needed, to pay the Management
Fee and any other Fund expenses not assumed by the Sponsor. The Administrator and/or Sponsor will endeavor to transfer or exchange the
smallest amount of bitcoin needed to pay applicable expenses. In the event the Sponsor’s Management Fee is paid in cash, it may
need to direct the Fund’s bitcoin to be exchanged for U.S. dollars. Under such circumstances, the Sponsor will utilize an approved
Bitcoin Trading Counterparty to exchange the Fund’s bitcoin for U.S. dollars. The Non-Digital Custodian will, when directed by the
Sponsor, withdraw funds from the Trust’s accounts to an account maintained by the Non-Digital Custodian for the Sponsor. Each delivery
or sale of bitcoin by the Fund to pay the Management Fee or other Fund expenses will be a taxable event to Shareholders.
In addition, if the Fund incurs
any Additional Fund Expenses, the Sponsor will cause the Non-Digital Custodian to withdraw funds from the Fund’s accounts in such
quantity as may be necessary to permit payment of such Additional Fund Expenses. In order to pay for such Additional Fund Expenses, the
Fund may need to sell bitcoin and/or Carbon Credit Futures, which it will do in a manner similar to the process defined above. Shareholders
do not have the option of choosing to pay their proportionate shares of Additional Fund Expenses in lieu of having their shares of Additional
Fund Expenses paid by the Fund.
PROVISIONS
OF LAW
According to applicable law,
indemnification of the Sponsor is payable only if the Sponsor determined, in good faith, that the act, omission or conduct that gave rise
to the claim for indemnification was in the best interest of the Fund and the act, omission or activity that was the basis for such loss,
liability, damage, cost or expense was not the result of negligence or misconduct and such liability or loss was not the result of negligence
or misconduct by the Sponsor, and such indemnification or agreement to hold harmless is recoverable only out of the assets of the Fund.
Provisions of Federal and State Securities
Laws
This offering is made pursuant
to federal and state securities laws. The SEC and state securities agencies take the position that indemnification of the Sponsor that
arises out of an alleged violation of such laws is prohibited unless certain conditions are met.
These conditions require that
no indemnification of the Sponsor or any underwriter for the Fund may be made in respect of any losses, liabilities or expenses arising
from or out of an alleged violation of federal or state securities laws unless: (i) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the party seeking indemnification and the court approves the indemnification;
(ii) such claim has been dismissed with prejudice on the merits by a court of competent jurisdiction as to the party seeking indemnification;
or (iii) a court of competent jurisdiction approves a settlement of the claims against the party seeking indemnification and finds that
indemnification of the settlement and related costs should be made, provided that, before seeking such approval, the Sponsor or other
indemnitee must apprise the court of the position held by regulatory agencies against such indemnification. These agencies are the SEC
and the securities administrator of the State or States in which the plaintiffs claim they were offered or sold interests.
Provisions of the Securities Act
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to the Sponsor or directors, officers, or persons controlling the Fund,
the Fund has been informed that the SEC believes that such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
MANAGEMENT;
VOTING BY SHAREHOLDERS
The Shareholders of the Fund
take no part in the management or control, and have no voice in, the Fund’s operations or business. Except in limited circumstances,
Shareholders have no voting rights under the Trust Agreement.
The Sponsor generally has
the right to amend the Trust Agreement as it applies to the Trust, and the Fund as a series of the Trust, provided that the Shareholders
have the right to vote only if expressly required under Delaware or federal law or rules or regulations of the [Exchange], or if submitted
to the shareholders by the Sponsor in its sole discretion. No amendment affecting the Trustee will be binding upon or effective against
the Trustee unless consented to by the Trustee in the form of an instruction letter.
MEETINGS
Meetings of the Fund’s
Shareholders may be called by the Sponsor for such purposes as may be prescribed by law or the Trust Agreement. All notices of meetings
will be sent or otherwise given to each Shareholder of record not less than 30 nor more than 60 days before the date of the meeting in
the manner determined by the Sponsor. [The notice will specify: (a) the place, date and hour of the meeting; and (b) the general nature
of the business to be transacted. Shareholders may vote in person, by proxy, or in any manner determined by the Sponsor at any such meeting.
Except when a larger quorum is required by applicable law or by the Trust Agreement, the presence (in person or by ballot) of thirty-three
and one-third percent (33 1/3%) of the Shares entitled to vote will constitute a quorum at a shareholders’ meeting. Any action taken
by Shareholders may be taken without a meeting so long as Shareholders holding a majority of Shares entitled to vote on the matter (or
such larger proportion thereof as will be required by any express provision of this Trust Agreement or federal law) or holding a majority
(or such larger proportion as aforesaid) of the Shares entitled to vote separately on the matter consent to the action in writing or by
other electronic means. Such consent will be treated for all purposes as a vote taken at a meeting of shareholders.]
BOOKS
AND RECORDS
The Trust keeps its books
of record and account at the office of the Sponsor located at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204, or at the
offices of the Administrator, or such office, including of an administrative agent, as it may subsequently designate upon notice. The
books of account of the Fund are open to inspection by any Shareholder (or any duly constituted designee of a Shareholder) at all times
during the usual business hours of the Fund upon reasonable advance notice to the extent such access is required under CFTC rules and
regulations. The Trust keeps a copy of the Trust Agreement on file in the Sponsor’s office, which will be available for inspection
by any Shareholder at all times during the Sponsor’s usual business hours upon reasonable advance notice.
GOVERNING
LAW; CONSENT TO DELAWARE JURISDICTION
The rights of the Sponsor,
the Trust, the Fund, DTC (as registered owner of the Trust’s global certificate for Shares) and the Shareholders are governed by
the laws of the State of Delaware. The Sponsor, the Trust, the Fund and DTC and, by accepting Shares, each DTC Participant and each Shareholder,
consent to the exclusive jurisdiction of the courts of the State of Delaware and any federal courts located in Delaware. Such consent
is not required for any person to assert a claim of Delaware jurisdiction over the Sponsor or the Trust. The Trust Agreement and the effect
of every provision thereof shall control over any contrary or limiting statutory or common law of the State of Delaware, other than the
Delaware Trust Statute.
legal
matters
Litigation and Claims
Except as described above,
within the past 10 years of the date of this prospectus, there have been no material administrative, civil or criminal actions against
the Sponsor, the Trust or the Fund, or any principal or affiliate of any of them. This includes any actions pending, on appeal, concluded,
threatened or otherwise known to them.
Legal Opinion
Chapman and Cutler LLP has
been retained to advise the Fund and the Sponsor with respect to the Shares being offered hereby and has passed upon the validity of the
Shares being issued hereunder. Chapman and Cutler LLP has also provided the Sponsor with its opinion with respect to U.S. federal income
tax matters addressed herein in “Material U.S. Federal Income Tax Consequences.” Certain opinions of counsel will be filed
with the SEC as exhibits to the Registration Statement.
Experts
The financial statements of
the Trust and management’s assessment of the effectiveness of internal controls over financial reporting of the Trust incorporated
by reference in reliance upon the reports of Tait, Weller, & Baker, LLP (“Tait Weller”), independent registered public accountants, upon the authority of said firm as experts
in accounting and auditing. The financial statements of the Fund included in this prospectus have been so included upon the reliance upon
the reports of Tait Weller, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing.
No expert hired by the Fund
to give advice on the preparation of this offering document has been hired on a contingent fee basis, nor do any of them have any present
or future expectation of interest in the Sponsor, Marketing Agent, Authorized Purchasers, Custodians/Administrator or other service providers
to the Fund.
Material
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes
certain material U.S. federal income tax consequences of the ownership of Shares. This discussion does not describe all of the tax consequences
that may be relevant to a beneficial owner of Shares in light of the beneficial owner’s particular circumstances, including tax
consequences applicable to beneficial owners subject to special rules, such as:
| ● | traders in securities or commodities that have elected to apply a mark-to-market method of tax accounting
in respect thereof; |
| ● | persons holding Shares as part of a hedge, “straddle,” integrated transaction or similar transaction; |
| ● | persons holding Shares acquired by them as part of a Creation Basket or redeeming Shares in exchange for
the underlying bitcoins and/or carbon credit futures represented by the redeemed Shares; |
| ● | U.S. Holders (as defined below) whose functional currency is not the U.S. dollar; |
| ● | entities or arrangements classified as partnerships for U.S. federal income tax purposes; |
| ● | real estate investment trusts; |
| ● | regulated investment companies; and |
| ● | tax-exempt entities, including individual retirement accounts. |
This discussion applies only
to Shares that are held as capital assets and does not address alternative minimum tax consequences or, except as explicitly discussed
below, the consequences of the 3.8% Medicare surtax on net investment income.
If an entity or arrangement
that is classified as a partnership for U.S. federal income tax purposes holds Shares, the U.S. federal income tax treatment of a partner
will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Shares and partners in
those partnerships are urged to consult their tax advisers about the particular U.S. federal income tax consequences of owning Shares.
This discussion is based on
the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations as of the date hereof,
changes to any of which subsequent to the date hereof may affect the tax consequences described herein. Prospective investors are urged
to consult their tax advisers about the application of the U.S. federal income tax laws to their particular situations, as well as
any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.
Tax matters are complex, and
the tax consequences of the purchase and holding of the Shares will depend on the particular facts of each investor’s situation.
You are advised to consult your own tax advisors with respect to the application to your own circumstances of the U.S. federal income
tax rules described below and with respect to other federal, state, local, or foreign tax consequences to you before making an investment
in the Shares.
U.S. Federal Income Taxation of the Fund
The Fund is classified as
a corporation for U.S. federal income tax purposes, and as such is obligated to pay U.S. federal and applicable state and foreign corporate
taxes on its taxable income. This differs from many investment companies, which elect to be treated as “regulated investment companies”
under the Code in order to avoid income tax obligations at the entity level. Under current law, the Fund is not eligible to elect treatment
as a regulated investment because the Fund’s investments consist primarily of bitcoin. As a result, the Fund will be obligated to
pay U.S. federal and state taxes on its taxable income unlike other investment companies which are not so obligated. The amount of taxes
currently paid by the Fund will vary depending on the amount of income and gains derived from investments, and such taxes may reduce your
return from an investment in the Fund.
The Fund invests its assets
primarily in bitcoin and carbon credit futures contracts. In the case of bitcoin, some of the carbon credit futures used by the Fund may
be “Section 1256 contracts.” Any gains or losses on Section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses (60/40) although certain foreign currency gains and losses from such contracts may be treated as ordinary
in character. Also, Section 1256 contracts held by the Fund at the end of each taxable year are “marked to market” with the
result that unrealized gains or losses are treated as though they were realized and the resulting gain or loss is treated as ordinary
or 60/40 gain or loss.
In the case of bitcoin, due
to the new and evolving nature of digital assets and the absence of comprehensive guidance with respect to digital assets, many significant
aspects of the U.S. federal income tax treatment of digital assets such as bitcoin are uncertain. Our dealings in or in connection with
digital assets, as well as transactions in digital assets generally, could be subject to adverse tax consequences in the U.S., including
as a result of changes in the legal regimes regulating digital assets, and our operating results, as well as the price of digital assets,
could be adversely affected thereby.
Many significant aspects of
the U.S. federal income tax treatment of digital assets (including with respect to the amount, timing and character of income recognition)
are uncertain. In 2014, the IRS released a notice (the “Notice”) discussing certain aspects of digital assets for U.S. federal
income tax purposes and, in particular, providing that such digital assets (1) are “property,” (2) are not “currency”
for purposes of the rules relating to foreign currency gain or loss and (3) may be held as a capital asset. In 2019, the IRS released
a revenue ruling and a set of “Frequently Asked Questions” (the “Ruling & FAQs”) that provide some additional
guidance, including guidance to the effect that, under certain circumstances, hard forks of digital assets are taxable events giving rise
to ordinary income and guidance with respect to the determination of the tax basis of digital assets. The Notice and the Ruling &
FAQs, however, do not address other significant aspects of the U.S. federal income tax treatment of digital assets. We do not intend to
request a ruling from the IRS on these or any other issues, and we will take positions on these and other U.S. federal income tax issues
relating to digital assets that we believe to be reasonable. There can be no assurance that the IRS will agree with the positions we take,
and it is possible that the IRS will successfully challenge our positions.
There can be no assurance
that the IRS will not alter its position with respect to digital assets in the future or that a court would uphold the treatment set forth
in the Notice and the Ruling & FAQs. It is also unclear what additional guidance on the treatment of digital assets for U.S. federal
income tax purposes may be issued in the future. Any such alteration of the current IRS positions or additional guidance could result
in adverse tax consequences for us and could have an adverse effect on the value of bitcoin or other digital assets. Because of the evolving
nature of digital assets, it is not possible to predict potential future developments that may arise with respect to digital assets. Such
developments may increase the uncertainty with respect to the treatment of digital assets for U.S. federal income tax purposes. For example,
the Notice addresses only digital assets that are “convertible virtual currency,” and it is conceivable that we will hold
certain types of digital assets that are not within the scope of the Notice.
On November 15, 2021, President
Biden signed the Infrastructure Investment and Jobs Act (the “IIJA”) into law. The IIJA implements a set of comprehensive
financial account information reporting rules that will apply to persons, including digital asset trading platforms and custodians, that
regularly effect transfers of digital assets on behalf of other persons. In particular, these rules will require digital asset trading
platforms and custodians to report digital asset transactions (including sales, exchanges and other transfers) effected on behalf of other
persons on an annual return, in a manner similar to the current reporting rules for brokers that effect stock and other securities transactions
on behalf of customers. The IRS issued proposed regulations on these rules on August 28, 2023. Under the proposed regulations the gross
proceeds of sales or exchanges of digital assets must be reported for transactions that take place on or after January 1, 2025, and, in
certain circumstances, gain or loss with respect to such sales or exchanges must be reported for transactions that take place on or after
January 1, 2026.
These rules, the effects of
which may depend in significant part on regulations or other guidance from the IRS on their implementation, could create significant compliance
burdens for us and our investors, and could affect the price of digital assets, which could have an adverse effect on our investments.
Federal Income Taxation of Holders
of the Fund’s Shares — U.S. Shareholders
The discussion under
the heading “Federal Income Taxation of Holders of the Fund’s Shares – U.S. Shareholders” (and all subheadings
thereunder) applies to a beneficial owner of a Share for U.S. federal income tax purposes that is:
| ● | an individual who is a citizen or resident of the U.S. for U.S. federal income tax purposes; |
| ● | a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, created
or organized in or under the laws of the U.S. or of any political subdivision thereof; or |
| ● | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
Receipt of Distributions
Distributions made
to you by the Fund (other than distributions in redemption of Shares subject to Section 302(b) of the Code) will generally constitute
dividends to the extent of your allocable share of the Fund’s current or accumulated earnings and profits, as calculated for federal
income tax purposes. Generally, a corporation’s earnings and profits are computed based upon taxable income, with certain specified
adjustments. To the extent that distributions to you exceed your allocable share of the Fund’s current and accumulated earnings
and profits, your tax basis in the Fund’s Shares with respect to which the distribution is made will be reduced, which will increase
the amount of any taxable gain (or decrease the amount of any tax loss) realized upon a subsequent sale or redemption of such Shares.
To the extent you hold such Shares as a capital asset and have no further basis in the Shares to offset the distribution, you will report
the excess as capital gain.
Distributions treated
as dividends under the foregoing rules generally will be taxable as ordinary income to you but may be treated as “qualified dividend
income.” Under current U.S. federal income tax law, qualified dividend income received by individuals and other non-corporate shareholders
is taxed at long-term capital gain rates, which are currently at a maximum of either 15% or 20% depending on whether the shareholder’s
income exceeds certain threshold amounts. For a dividend to constitute qualified dividend income, the shareholder generally must hold
the Shares paying the dividend for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date, although
a longer period may apply if the shareholder engages in certain risk reduction transactions with respect to the common stock.
Dividends paid
by the Fund are expected to be eligible for the dividends received deduction available to corporate shareholders under Section 243 of
the Code. However, corporate shareholders should be aware that certain limitations apply to the availability of the dividends received
deduction, including rules which limit the deduction in cases where (i) certain holding period requirements are not met, (ii) the corporate
shareholder is obligated (e.g., pursuant to a short sale) to make related payments with respect to positions in substantially similar
or related property, or (iii) the corporate shareholder’s investment in Shares of the Fund is financed with indebtedness. Corporate
shareholders should consult their own tax advisors regarding the application of these limitations to their particular situations.
An additional 3.8%
Medicare surtax is imposed on certain net investment income (including ordinary dividends received from the Fund and net gains from redemptions
or other taxable dispositions of Fund Shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified
adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust)
exceeds certain threshold amounts.
Redemptions and Sales of Shares
A redemption of common Shares
will be treated as a sale or exchange of such Shares, provided the redemption either is not essentially equivalent to a dividend, is a
substantially disproportionate redemption, is a complete redemption of a shareholder’s entire interest in the Fund, or is in partial
liquidation of the Fund. Redemptions that do not qualify for sale or exchange treatment will be treated as described in “Receipt
of Distributions” above.
Upon a redemption treated
as a sale or exchange under the foregoing rules, or upon a sale of your Shares to a third party, you generally will recognize capital
gain or loss equal to the difference between the cost of your Shares and the amount you receive when you sell them. Any such capital gain
or loss will be a long-term capital gain or loss if you held the Shares for more than one year at the time of disposition. Long-term capital
gains of certain non-corporate common shareholders (including individuals) are currently subject to U.S. federal income taxation at a
maximum rate of either 15% or 20% depending on whether the shareholder’s income exceeds certain threshold amounts. The deductibility
of capital losses is subject to limitations under the Code.
A federal excise tax on stock
repurchases is expected to apply to the Fund in the event that the Fund repurchases its own Shares. The excise tax is one percent (1%)
of the fair market value of Fund Share redemptions less the fair market value of Fund Share issuances (in excess of $1 million of fair
market value) annually on a taxable year basis. This excise tax would be payable by the Fund, and not by any holder of Shares, although
payment of the excise tax could reduce a shareholder’s return on an investment in the Fund.
Tax-Exempt Investors
Employee benefit plans and
most other organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, are subject
to federal income tax on their unrelated business taxable income (or “UBTI”). Because the Fund is classified as a corporation
for federal income tax purposes, an owner of any of the Fund’s Shares will not report on its federal income tax return any items
of income, gain, loss, and deduction that are allocated to the Fund from its investments. Moreover, dividend income from, and gain from
the sale of, corporate stock generally does not constitute UBTI unless the acquisition of the corporate stock is debt-financed. Therefore,
a tax-exempt investor should not have UBTI attributable to the ownership, sale, or redemption of the Fund’s Shares unless the tax-exempt
investor’s acquisition of the Shares was financed with debt. In general, Shares are considered to be debt-financed if the tax-exempt
owner of the Shares incurred debt to acquire the Shares or otherwise incurred a debt that would not have been incurred if the Shares had
not been acquired.
Regulated Investment Company Investors
The income and gain realized
from an investment in the Fund’s Shares by an investor that is a regulated investment company should constitute qualifying income
for the purposes of the rules relating to regulated investment companies. Furthermore, the Fund’s Shares will generally constitute
“qualifying assets” for a regulated investment company, which are generally subject to a requirement that at least 50% of
the regulated investment company’s total assets must consist of qualifying assets at the end of each quarter, and the amount of
Fund Shares owned by the regulated investment company may not constitute more than 5% of the value of the total assets held by the regulated
investment company or more than 10% of the Fund’s outstanding voting securities.
Federal Income Taxation of Holders
of the Fund’s Shares — Non-U.S. Shareholders
The discussion under the heading
“Federal Income Taxation of Holders of the Fund’s Shares – Non-U.S. Shareholders” applies to, and the term “Non-U.S.
Shareholder” shall mean, a beneficial owner of a Share for U.S. federal income tax purposes that is:
| ● | a nonresident alien individual; |
| ● | a foreign corporation; or |
| ● | a foreign estate or trust. |
Receipt of Distributions
Distributions by the Fund
will be treated as dividends for U.S. federal income tax purposes to the extent paid from the Fund’s current or accumulated earnings
and profits (as determined under U.S. federal income tax principles). Dividends paid by the Fund to a Non-U.S. Shareholder generally will
be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. If a Non-U.S. Shareholder
claims a reduced rate of withholding under an income tax treaty, the Non-U.S. Shareholder will be required to provide an IRS Form W-8BEN
or IRS Form W-8BEN-E certifying its eligibility to benefits under the income tax treaty in order to obtain the reduced rate of withholding
tax.
If the amount of a distribution
exceeds a Non-U.S. Shareholder’s allocable share of the Fund’s current and accumulated earnings and profits, such excess will
be treated for U.S. federal income tax purposes as a tax-free return of capital to the extent of the Non-U.S. Shareholder’s tax
basis in the Fund’s Shares. To the extent that any distribution received by a Non-U.S. Shareholder exceeds the sum of (i) such Non-U.S.
Shareholder’s allocable share of the Fund’s current and accumulated earnings and profits and (ii) such Non-U.S. Shareholder’s
tax basis in the Fund’s Shares, such excess will be treated as gain from the sale of the Shares and will be taxed as described in
“Redemptions and Sales of Shares” below.
Redemptions and Sales of Shares
A redemption of the Fund’s
Shares will be treated as a sale or exchange of such Shares, provided the redemption either is not essentially equivalent to a dividend,
is a substantially disproportionate redemption, is a complete redemption of a shareholder’s entire interest in the Fund, or is in
partial liquidation of the Fund. Redemptions that do not qualify as a sale or exchange will be treated as described in “Receipt
of Distributions” above.
A Non-U.S. Shareholder generally
will not be subject to U.S. federal income tax on gain realized on a redemption that is treated as a sale or exchange for U.S. federal
income tax purposes, or on gain realized on the sale, exchange or other non-redemption disposition of the Fund’s Shares, except
in the following situations:
| ● | the gain is effectively connected with a trade or business of the Non-U.S. Shareholder in the U.S. or,
if the Non-U.S. Shareholder is a qualifying resident of a country with which the U.S. has a tax treaty, such gain is attributable to a
permanent establishment maintained by such Non-U.S. Shareholder in the U.S.; |
| ● | the Non-U.S. Shareholder is an individual who is present in the U.S. for 183 days or more in the taxable
year of disposition and who has a “tax home” in the U.S.; or |
| ● | the Fund is or has been a U.S. real property holding corporation, as defined below, at any time within
the five-year period preceding the date of disposition of the Shares or, if shorter, within the period during which the Non-U.S. Shareholder
has held the Shares. Generally, a corporation is a U.S. real property holding corporation if the fair market value of its U.S. real property
interests, as defined in the Code and applicable regulations, equals or exceeds 50% of the aggregate fair market value of its worldwide
real property interests and its other assets used or held for use in a trade or business. The Fund is not likely to be or become a U.S.
real property holding corporation as long as the Fund invests consistently with its investment strategy. |
Each potential
Non-U.S. Shareholder is urged to consult his, her or its own tax advisor regarding the U.S. federal income tax consequences of the acquisition,
holding, redemption, sale, exchange or other disposition of Fund Shares.
Estate Tax
Non-U.S. Shareholders of the
Fund may be subject to U.S. estate tax with respect to their Fund Shares.
FATCA Withholding
Withholding of
U.S. tax (at a 30% rate) is required with respect to payments of dividends made to certain non-U.S. entities that fail to comply (or be
deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. Shareholders may be requested to provide additional information to enable the applicable withholding agent
to determine whether withholding is required.
Backup Withholding
Federal regulations
generally require the Fund to withhold and remit “backup withholding” to the U.S. Treasury with respect to dividends and the
proceeds of any redemption paid to you if you fail to furnish the Fund or the Fund’s paying agent with a properly completed and
executed IRS Form W-9, IRS Form W-8BEN, IRS Form W-8BEN-E or other applicable form. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines that your taxpayer identification number is incorrect or if you have failed to properly report
taxable dividends or interest on a federal tax return. A taxpayer identification number is either the Social Security number or employer
identification number of the record owner of the Shares. Any backup withholding does not constitute an additional tax imposed on the record
owner of the Shares and may be claimed as a credit on the record owner’s federal income tax return. The current backup withholding
rate is 24%.
Taxes on Purchase and Redemption of Creation
Units
An investor who exchanges
bitcoin or carbon credit futures for Creation Shares generally will recognize a gain or a loss. The gain or loss will be equal to the
difference between the market value of the Creation Shares at the time of the exchange and the exchanger’s aggregate basis in the
bitcoin or carbon credit futures surrendered and the amount of any cash consideration paid. A person who exchanges Creation Shares for
bitcoin or carbon credit futures will generally recognize a gain or loss equal to the difference between the exchanger’s basis in
the Creation Shares and the aggregate value of the bitcoin and/or carbon credit futures and any cash received on such redemption. The
IRS, however, may assert that a loss realized upon an exchange of securities for Creation Shares cannot be deducted currently under the
rules governing “wash sales,” or on the basis that there has been no significant change in economic position. Persons exchanging
securities should consult their own tax advisor with respect to whether the wash sale rules apply and when a loss might be deductible.
If you purchase or redeem
Creation Shares, you will be sent a confirmation statement showing how many and at what price you purchased or sold Shares.
The foregoing discussion
summarizes certain consequences under current U.S. federal tax law of an investment in the Fund. It is not a substitute for personal tax
advice. You may also be subject to state and local taxation on Fund distributions, and sales of Fund Shares. Consult your personal tax
advisor about the potential tax consequences of an investment in Fund Shares under all applicable tax laws. Changes in applicable tax
authority could materially affect the conclusions discussed above and could adversely affect the Fund.
Purchases
by Employee Benefit Plans
The Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), and/or Code section 4975 impose certain requirements on employee benefit plans
and certain other plans and arrangements, including individual retirement accounts and annuities, Keogh plans, and certain collective
investment funds or insurance company general or separate accounts in which such plans or arrangements are invested, that are subject
to ERISA and/or the Code (collectively, “Plans”), and on persons who are fiduciaries with respect to the investment of assets
treated as “plan assets” of a Plan. Government plans and some church plans are not subject to the fiduciary responsibility
provisions of ERISA or the provisions of section 4975 of the Code, but may be subject to substantially similar rules under state or other
federal law.
In contemplating an investment
of a portion of Plan assets in Shares, the Plan fiduciary responsible for making such investment should carefully consider, taking into
account the facts and circumstances of the Plan, the “Risk Factors” discussed above and whether such investment is consistent
with its fiduciary responsibilities, including, but not limited to (1) whether the fiduciary has the authority to make the investment
under the appropriate governing plan instrument, (2) whether the investment would constitute a direct or indirect non-exempt prohibited
transaction with a party in interest, (3) the Plan’s funding objectives, and (4) whether under the general fiduciary standards
of investment prudence and diversification such investment is appropriate for the Plan, taking into account the overall investment policy
of the Plan, the composition of the Plan’s investment portfolio and the Plan’s need for sufficient liquidity to pay benefits
when due.
It is anticipated that the
Shares will constitute “publicly-held offered securities” as defined in the Department of Labor Regulations § 2510.3-101(b)(2).
Accordingly, Shares purchased by a Plan, and not the Plan’s interest in the underlying bitcoins held in the Trust represented by
the Shares, should be treated as assets of the Plan, for purposes of applying the “fiduciary responsibility” and “prohibited
transaction” rules of ERISA and the Code.
Investment by Certain Retirement Plans
Individual retirement accounts
(IRA) and participant-directed accounts under tax-qualified retirement plans are limited in the types of investments they may make under
the Code. Potential purchasers of Shares that are IRAs or participant-directed accounts under a Code section 401(a) plan should consult
with their own tax advisors as to the consequences of a purchase of Shares.
General
Pool Disclosure
Information
you should know
This prospectus contains information
you should consider when making an investment decision about the Shares. You should rely only on the information contained in this prospectus
or any applicable prospectus supplement. None of the Trust, the Fund or the Sponsor has authorized any person to provide you with different
information and, if anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not
an offer to sell the Shares in any jurisdiction where the offer or sale of the Shares is not permitted.
The information contained
in this prospectus was obtained from us and other sources believed by us to be reliable.
You should disregard anything
we said in an earlier document that is inconsistent with what is included in this prospectus or any applicable prospectus supplement.
Where the context requires, when we refer to this “prospectus,” we are referring to this prospectus and (if applicable) the
relevant prospectus supplement.
You should not assume that
the information in this prospectus or any applicable prospectus supplement is current as of any date other than the date on the front
page of this prospectus or the date on the front page of any applicable prospectus supplement.
We include cross references
in this prospectus to captions in these materials where you can find further related discussions. The table of contents tells you where
to find these captions.
where
You can find more information
The Trust, on behalf of the
Fund, has filed a registration statement on Form S-1 with the SEC under the Securities Act. This Prospectus does not contain all of the
information set forth in the registration statement (including the exhibits to the registration statement), parts of which have been omitted
in accordance with the rules and regulations of the SEC. For further information about the Fund or the Shares, please refer to the registration
statement, which you may inspect, without charge, online at www.sec.gov.
Information about the Fund
and the Shares can also be obtained from the [Fund’s] website, which is [ ]. The [Fund’s] website address is only provided
here as a convenience to you and the information contained on or connected to the website is not part of this prospectus or the registration
statement of which this prospectus is part. The Fund is subject to the informational requirements of the Exchange Act and will file certain
reports and other information with the SEC under the Exchange Act. The Sponsor will file an updated prospectus annually on behalf of the
Fund pursuant to the requirements of the Securities Act.
The reports and other information
are available online at www.sec.gov.
STATEMENTS,
FILINGS AND REPORTS
The
Trust will furnish annual reports (as of the end of each fiscal year) for the Fund to DTC purchasers for distribution to Shareholders,
as required to be provided to Shareholders by the CFTC and the NFA. These annual reports will contain financial statements prepared by
the Sponsor and audited by an independent registered public accounting firm designated by the Sponsor.
The
Trust will also post monthly reports to the Fund’s website ([ ]). These monthly reports will contain certain unaudited financial
information regarding the Fund, including the Fund’s NAV. The Sponsor will furnish to the Shareholders other reports or information
which the Sponsor, in its discretion, determines to be necessary or appropriate.
In
addition, under SEC rules the Trust will be required to file quarterly and annual reports for the Fund with the SEC, which need not be
sent to Shareholders but will be publicly available through the SEC. The Trust will post the same information that would otherwise be
provided in the Trust’s CFTC, NFA and SEC reports on the Fund’s website: [ ].
The
accountants’ report on its audit of the Fund’s financial statements will be furnished by the Trust to Shareholders upon request.
The Trust will file such tax returns, and prepare, disseminate and file such tax reports for the Fund as it is advised by its counsel
or accountants are from time to time required by any applicable statute, rule or regulation and will make such tax elections for the Fund
as it deems advisable. The Fund or its appointed agent will provide tax information in accordance with the Code and applicable U.S. Treasury
Regulations. Persons treated as intermediaries for purposes of these regulations may obtain tax information regarding the Fund by contacting
the Fund at 234 West Florida Street, Suite 203, Milwaukee, Wisconsin 53204 or from the Fund’s website, [ ].
Fiscal
Year
The fiscal year of the Fund
is the period ending December 31 of each year. The Sponsor may select an alternate fiscal year.
SUMMARY
OF PROMOTIONAL AND SALES MATERIAL
The Fund expects to use the
following sales material it has prepared:
| ● | the Fund’s website, [ ]; and |
| ● | the Fund Fact Sheet found on the Fund’s website. |
The materials described above
are not a part of this prospectus or the registration statement of which this prospectus is a part.
incorporation
by reference of certain documents
The Trust is a reporting company
and files annual, quarterly and current reports and other information with the SEC. The rules of the SEC allow the Trust to “incorporate
by reference” information that the Trust files with them, which means that the Trust can disclose important information to you by
referring you to those documents. The information incorporated by reference is an important part of this prospectus. This prospectus incorporates
by reference the documents set forth below that have been previously filed with the SEC and any future filings that the Trust makes with
the SEC under Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 (in each case other than those documents or portions
of those documents not deemed to have been filed in accordance with SEC rules) between the date of this prospectus and the termination
of the offering of the securities to be issued under the registration statement:
| ● | Our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024; |
| ● | Our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 filed with the SEC on
May 15, 2024; and |
| ● | Our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 filed with the SEC on August 14, 2024. |
Any statement contained in
a document incorporated by reference in this prospectus shall be deemed to be modified or superseded for purposes of this prospectus to
the extent that a statement contained in this prospectus or in any other subsequently filed document that also is or is deemed to be incorporated
by reference in this prospectus modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
We will provide to each person
to whom a prospectus is delivered, including any beneficial owner, a copy of any document incorporated by reference in the prospectus
(excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in that document)
at no cost, upon written or oral request at the following address or telephone number:
7RCC Spot Bitcoin and Carbon
Credit Futures ETF
Attention: Tidal Investments LLC
234 West Florida Street, Suite 203
Milwaukee, WI 53204
(844)-986-7700
The Fund’s internet
website is [ ]. The Trust makes its electronic filings with the SEC, including its annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to these reports available on the Fund’s website free of charge as soon as practicable
after we file or furnish them with the SEC. The information contained on the Fund’s website is not incorporated by reference in
this prospectus and should not be considered a part of this prospectus.
financial
statements
The financial statements of
the Trust have been incorporated into this prospectus and registration statement as described above under “Incorporation By Reference
of Certain Information.” The financial statements of the Fund are set forth below.
7RCC Spot Bitcoin and Carbon Credit Futures
ETF
Index to Financial Statements
|
Page Number |
Report of Independent Registered Public Accounting Firm |
[ ] |
Statement of Assets and Liabilities |
[ ] |
Notes to Statement of Assets and Liabilities |
[ ] |
Report of Independent Registered
Public Accounting Firm
[to be provided by pre-effective
amendment]
7RCC Spot Bitcoin and Carbon Credit Futures
ETF
Statement of Assets and Liabilities
[to be provided by pre-effective
amendment]
Notes to Statement of Assets
and Liabilities
[______, ____]
[to be provided by pre-effective
amendment]
Statement
of additional information
7RCC Spot Bitcoin and Carbon
Credit Futures ETF
This statement of additional
information is the second part of a two-part document. The first part is the Fund’s disclosure document. The disclosure document
and this statement of additional information are bound together, and both parts contain important information. This statement of additional
information should be read in conjunction with the disclosure document. To obtain a copy of the disclosure document without charge, call
the Fund at (844)-986-7700. Before you decide whether to invest, you should read the entire prospectus carefully and consider the risk
factors beginning on page [ ].
This statement of additional
information and accompanying disclosure document are both dated [ ], 2024.
7RCC Spot Bitcoin and Carbon
Credit Futures ETF
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Regulation
Futures Market Regulation
The regulation of futures
markets, futures contracts, and futures exchanges has historically been comprehensive. The CFTC and the exchanges are authorized to take
extraordinary actions in the event of a market emergency including, for example, the retroactive implementation of speculative position
limits, increased margin requirements, the establishment of daily price limits and the suspension of trading on an exchange or trading
facility.
Pursuant to authority in
the Commodity Exchange Act (“CEA”), the National Futures Association (“NFA”) has been formed and registered with
the Commodity Futures Trading Commission (“CFTC”) as a registered futures association. At the present time, the NFA is the
only self-regulatory organization (“SRO”) for commodity interest professionals, other than futures exchanges. The CFTC has
delegated to the NFA responsibility for the registration of CPOs and FCMs and their respective associated persons. The Sponsor and the
Fund’s clearing broker are members of the NFA. As such, they will be subject to NFA standards relating to fair trade practices,
financial condition and consumer protection. The NFA also arbitrates disputes between members and their customers and conducts registration
and fitness screening of applicants for membership and audits of its existing members. Neither the Trust nor the Fund is required to become
a member of the NFA. The regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject
to ongoing modification by governmental and judicial action. Considerable regulatory attention has been focused on non-traditional investment
pools that are publicly distributed in the United States. There is a possibility of future regulatory changes within the United States
altering, perhaps to a material extent, the nature of an investment in the Fund, or the ability of the Fund to continue to implement its
investment strategy. In addition, various national governments outside of the United States have expressed concern regarding the disruptive
effects of speculative trading in the commodities markets and the need to regulate the derivatives markets in general. The effect of any
future regulatory change on the Fund is impossible to predict but could be substantial and adverse.
The CFTC possesses exclusive
jurisdiction to regulate the activities of commodity pool operators and commodity trading advisors with respect to “commodity interests,”
such as futures, swaps, and options, and has adopted regulations with respect to the activities of those persons and/or entities. Under
the CEA, a registered commodity pool operator, such as the Sponsor, is required to make annual filings with the CFTC and the NFA describing
its organization, capital structure, management and controlling persons. In addition, the CEA authorizes the CFTC to require and review
books and records of, and documents prepared by, registered commodity pool operators. Pursuant to this authority, the CFTC requires commodity
pool operators to keep accurate, current and orderly records for each pool that they operate. The CFTC may suspend the registration of
a commodity pool operator (1) if the CFTC finds that the operator’s trading practices tend to disrupt orderly market conditions,
(2) if any controlling person of the operator is subject to an order of the CFTC denying such person trading privileges on any exchange,
and (3) in certain other circumstances. Suspension, restriction or termination of the Sponsor’s registration as a commodity pool
operator would prevent it, until that registration were to be reinstated, from managing the Fund, and might result in the termination
of the Fund if a successor sponsor is not elected pursuant to the Trust Agreement. Neither the Trust nor the Fund is required to be registered
with the CFTC in any capacity.
The Fund’s investors
are afforded prescribed rights for reparations under the CEA. Investors may also be able to maintain a private right of action for violations
of the CEA. The CFTC has adopted rules implementing the reparation provisions of the CEA, which provide that any person may file a complaint
for a reparations award with the CFTC for violation of the CEA against a floor broker or an FCM, introducing broker, commodity trading
advisor, CPO, and their respective associated persons.
The regulations of the CFTC
and the NFA prohibit any representation by a person registered with the CFTC or by any member of the NFA, that registration with the CFTC,
or membership in the NFA, in any respect indicates that the CFTC or the NFA has approved or endorsed that person or that person’s
trading program or objectives. The registrations and memberships of the parties described in this summary must not be considered as constituting
any such approval or endorsement. Likewise, no futures exchange has given or will give any similar approval or endorsement.
Trading venues in the United
States are subject to varying degrees of regulation under the CEA depending on whether such exchange is a designated contract market (i.e.
a futures exchange) or a swap execution facility. Clearing organizations are also subject to the CEA and the rules and regulations adopted
thereunder as administered by the CFTC. The CFTC’s function is to implement the CEA’s objectives of preventing price manipulation
and excessive speculation and promoting orderly and efficient commodity interest markets. In addition, the various exchanges and clearing
organizations themselves as SROs exercise regulatory and supervisory authority over their member firms.
The Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted in response to the economic crisis of 2008 and 2009
and it significantly altered the regulatory regime to which the securities and commodities markets are subject. To date, the CFTC has
issued proposed or final versions of almost all of the rules it is required to promulgate under the Dodd-Frank Act, and it continues to
issue proposed versions of additional rules that it has authority to promulgate. Provisions of the new law include the requirement that
position limits be established on a wide range of commodity interests, including agricultural, energy, and metal-based commodity futures
contracts, options on such futures contracts and uncleared swaps that are economically equivalent to such futures contracts and options
(“Reference Contracts”); new registration and recordkeeping requirements for swap market purchasers; capital and margin requirements
for “swap dealers” and “major swap,” as determined by the new law and applicable regulations; reporting of all
swap transactions to swap data repositories; and the mandatory use of clearinghouse mechanisms for sufficiently standardized swap transactions
that were historically entered into in the OTC market, but are now designated as subject to the clearing requirement; and margin requirements
for OTC swaps that are not subject to the clearing requirements.
In addition, considerable
regulatory attention has recently been focused on non-traditional publicly distributed investment pools such as the Fund. Furthermore,
various national governments have expressed concern regarding the disruptive effects of speculative trading in certain commodity markets
and the need to regulate the derivatives markets in general. The effect of any future regulatory change on the Funds is impossible to
predict but could be substantial and adverse.
The Dodd-Frank Act was intended
to reduce systemic risks that may have contributed to the 2008/2009 financial crisis. Since the first draft of what became the Dodd-Frank
Act, supporters and opponents have debated the scope of the legislation. As the Administrations of the U.S. change, the interpretation
and implementation will change along with them. Nevertheless, regulatory reform of any kind may have a significant impact on U.S. regulated
entities.
Spot Market Transactions
Spot markets, on the other
hand, are largely unregulated and rely on pricing sources that track over-the-counter (OTC) transactions. For cryptoassets, including
bitcoin, these OTC transactions are relatively new and usually take place in the so-called crypto exchanges or digital asset trading platforms.
Digital asset trading platforms
are relatively new and, in some cases, unregulated. Furthermore, while many prominent digital asset trading platforms provide the public
with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance, many
digital asset trading platforms do not provide this information. Digital asset trading platforms do not appear to be subject to, or may
not comply with, regulation in a similar manner as other regulated trading platforms, such as national securities trading platforms or
designated contract markets. These markets are local, national and international and include a broadening range of digital assets and
participants. Significant trading may occur on systems and platforms with minimum predictability. Furthermore, many spot markets and over-the-counter
market venues do not provide the public with significant information regarding their ownership structure, management teams, corporate
practices or oversight of customer trading. As a result, the marketplace may lose confidence in digital asset trading platforms, including
prominent trading platforms that handle a significant volume of bitcoin trading.
Many digital asset trading
platforms are unlicensed, unregulated, operate without extensive supervision by governmental authorities, and do not provide the public
with significant information regarding their ownership structure, management team, corporate practices, cybersecurity, and regulatory
compliance. In particular, those located outside the United States may be subject to significantly less stringent regulatory and compliance
requirements in their local jurisdictions. As a result, trading activity on or reported by these digital asset trading platforms is generally
significantly less regulated than trading in regulated U.S. securities and commodities markets, and may reflect behavior that would be
prohibited in regulated U.S. trading venues.
Position Limits, Aggregation
Limits, Price Fluctuation Limits
The CFTC and US futures exchanges
impose limits on the maximum net long or net short speculative positions that any person may hold or control in any particular futures
or options contracts traded on US futures exchanges. For example, the CFTC currently imposes speculative position limits on cryptocurrencies
and a number of commodities (e.g., corn, oats, wheat, soybeans and cotton) and US futures exchanges currently impose speculative position
limits on many other commodities. The Fund could be required to liquidate positions it holds in order to comply with position limits or
may not be able to fully implement trading instructions in order to track its index, the 7RCC Vinter Bitcoin Carbon Credit Index (the
“Index) in order to comply with position limits. Any such liquidation or limited implementation could result in substantial costs
to the Fund and the Fund’s performance to deviate from that of the Index.
The Dodd-Frank Act significantly
expanded the CFTC’s authority to impose position limits with respect to futures contracts and options on futures contracts, swaps
that are economically equivalent to futures or options on futures, and swaps that are traded on a regulated exchange and certain swaps
that perform a significant price discovery function. The aggregate position limits currently in place under the current position limits
and the Aggregation Requirements are as follows for each of the carbon credit futures contracts traded by the Fund:
Carbon Credit Futures Contract |
Spot Month Position Limit |
All Month and Single Month (excluding spot month) Aggregate Accountability Level |
European Union Emissions Trading System |
|
|
California Carbon Allowance |
|
|
Regional Greenhouse Gas Initiative |
|
|
The CFTC has attempted to
exercise authority to enact additional and more restricted speculative position limits with respect to futures and options on futures
on so-called “exempt commodities” (which includes most energy and metals contracts) and with respect to agricultural commodities,
but those proposed limits were vacated by a United States District Court. The CFTC has once again attempted to enact additional and more
restrictive limits. For a discussion generally regarding the risks that position limits may pose for the Fund, see the “RISK FACTORs”
section and related disclosure regarding position limits, accountability levels and dynamic price fluctuation limits.
With the exception of the
nine legacy agricultural contracts, the CFTC’s position limits would apply only in the spot month. These limits would generally
be set at 25 percent of the deliverable supply but may be higher or lower for certain contracts. With respect to the non-legacy contracts,
the rule would require the relevant exchange on which the contracts are traded to adopt either position limits or position accountability
levels.
The proposed rules also would
expand the current list of enumerated bona fide hedges to include, for example, hedges of anticipated merchandizing. To provide market
purchasers with greater flexibility on managing their business risks, the proposal also provides guidance on whether and when market purchasers
are permitted to measure risk on a gross basis rather than a net basis. However, firms will be required to measure risk on a consistent
basis. Enumerated hedges are self-effectuating. That is, no prior approval would be required from the CFTC, although a market purchaser
would be required to obtain approval from the relevant exchange. Self-effectuating hedge exemptions also would be available for other
transactions such as spreads and pass-through swaps as approved by exchanges. With respect to non-enumerated hedge exemptions, a market
purchaser would be required to file a request to exceed the position limit with the relevant exchange. If the exchange grants the request
for a non-enumerated hedge exemption, the exchange will forward its decision to the CFTC for review. The exemption will be deemed granted
provided the CFTC does not intervene during a 10-day review period. The market purchaser would not be permitted to exceed the applicable
position limit until the 10-day review period lapses. Importantly, the CFTC may act solely through its commissioners and not through staff.
In terms of process changes, the CFTC is proposing to eliminate Form 204 cash positions report and the cash information reported under
Form 304. Comments on the proposed rule must be submitted no later than 90 days after approval of the proposal by the CFTC (i.e., April
29, 2020). The CFTC does not intend to extend the comment period.
It is unknown at this time
the effect that such passage, adoption or modification will have, positively or negatively, on the industry or on the Fund. The size or
duration of positions available to the Fund may be severely limited. Pursuant to the CFTC’s and the exchanges’ aggregation
requirements, all accounts owned or managed by the Sponsor are likely to be combined for speculative position limits purposes. The Fund
could be required to liquidate positions it holds in order to comply with such limits or may not be able to fully implement trading instructions
generated by its trading models, in order to comply with such limits. Any such liquidation or limited implementation could result in substantial
costs to the Fund.
These new regulations and
the resulting increased costs and regulatory oversight requirements may result in market purchasers being required or deciding to limit
their trading activities, which could lead to decreased market liquidity and increased market volatility. In addition, transaction costs
incurred by market purchasers are likely to be higher due to the increased costs of compliance with the new regulations. These consequences
could adversely affect the Fund’s returns.
FCMs
The CEA requires all FCMs,
such as the Fund’s clearing brokers, to meet and maintain specified fitness and financial requirements, to segregate customer funds
from proprietary funds and account separately for all customers’ funds and positions, and to maintain specified books and records
open to inspection by the staff of the CFTC. The CFTC has similar authority over introducing brokers, or persons who solicit or accept
orders for commodity interest trades but who do not accept margin deposits for the execution of trades. The CEA authorizes the CFTC to
regulate trading by FCMs and by their officers and directors, permits the CFTC to require action by exchanges in the event of market emergencies,
and establishes an administrative procedure under which customers may institute complaints for damages arising from alleged violations
of the CEA. The CEA also gives the states powers to enforce its provisions and the regulations of the CFTC.
On November 14, 2013, the
CFTC published final regulations that require enhanced customer protections, risk management programs, internal monitoring and controls,
capital and liquidity standards, customer disclosures and auditing and examination programs for FCMs. The rules are intended to afford
greater assurances to market purchasers that customer segregated funds and secured amounts are protected, customers are provided with
appropriate notice of the risks of futures trading and of the FCMs with which they may choose to do business, FCMs are monitoring and
managing risks in a robust manner, the capital and liquidity of FCMs are strengthened to safeguard the continued operations and the auditing
and examination programs of the CFTC and the SROs are monitoring the activities of FCMs in a thorough manner.
Potential Advantages of Investment
Interest Income and Expense.
Unlike some alternative investment
funds, the Fund does not borrow money in order to obtain leverage, so the Fund does not incur any interest expense. Rather, the Fund’s
margin deposits, and cash reserves are maintained in cash and cash equivalents and interest is generally earned on available assets, which
include unrealized profits credited to the Fund’s accounts.
Fund Performance
As of the date of this prospectus,
the Fund has not yet commenced trading and does not have any performance history.
PROSPECTUS
7RCC SPOT BITCOIN AND CARBON CREDIT FUTURES
ETF
Until [__________, ____]
(25 calendar days after the date of this prospectus), all dealers effecting transactions in the Shares, whether or not participating
in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver
a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.
[________,
_____]
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
TABLE OF CONTENTS
| Item 13. | Other Expenses of Issuance and Distribution. |
The Trust shall not bear any
expenses incurred in connection with the issuance and distribution of the securities being registered. These expenses shall be paid by
Tidal Investments LLC, the sponsor of the Trust. Except for the Securities and Exchange Commission Registration Fee and Exchange Listing
Fee, all such expenses are estimated:
SEC registration fee (actual) |
$[ ]* |
Listing fee (actual) |
$[ ]* |
Auditor’s fees and expenses |
$[ ]* |
Legal fees and expenses |
$[ ]* |
Printing expenses |
$[ ]* |
Miscellaneous expenses |
$[ ]* |
Total |
$[ ]* |
* to
be provided by amendment
| Item 14. | Indemnification of Directors and Officers. |
The Trust’s First Amended
and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”) provides that the Sponsor shall be indemnified
by the Trust(or, by a series of the Trust separately to the extent the matter in question relates to a single series or disproportionately
affects a series in relation to other series) against any losses, judgments, liabilities, expenses and amounts paid in settlement of any
claims sustained by it in connection with its activities for the Trust, provided that (i) the Sponsor was acting on behalf of or performing
services for the Trust and has determined, in good faith, that such course of conduct was in the best interests of the Trust and such
liability or loss was not the result of gross negligence, willful misconduct, or a breach of the Trust Agreement on the part of the Sponsor
and (ii) any such indemnification will only be recoverable from the applicable trust estate or trust estates. All rights to indemnification
permitted by the Trust Agreement and payment of associated expenses shall not be affected by the dissolution or other cessation to exist
of the Sponsor, or the withdrawal, adjudication of bankruptcy or insolvency of the Sponsor, or the filing of a voluntary or involuntary
petition in bankruptcy under Title 11 of the Bankruptcy Code by or against the Sponsor.
Notwithstanding the foregoing,
the Sponsor shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of U.S. federal
or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee and the court approves the indemnification of such expenses (including, without limitation,
litigation costs), (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular
indemnitee and the court approves the indemnification of such expenses (including, without limitation, litigation costs) or (iii) a court
of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement
and related costs should be made.
The Trust and its series shall
not incur the cost of that portion of any insurance which insures any party against any liability, the indemnification of which is prohibited
by the Trust Agreement.
Expenses incurred in defending
a threatened or pending civil, administrative or criminal action, suit or proceeding against the Sponsor shall be paid by the Trust or
the applicable series of the Trust in advance of the final disposition of such action, suit or proceeding, if (i) the legal action relates
to the performance of duties or services by the Sponsor on behalf of the Trust or a series of the Trust; (ii) the legal action is initiated
by a party other than the Trust; and (iii) the Sponsor undertakes to repay the advanced funds with interest to the Trust or the applicable
series of the Trust in cases in which it is not entitled to indemnification under the Trust Agreement.
For purposes of the indemnification
provisions of the Trust Agreement, the term “Sponsor” includes, in addition to the Sponsor, any other covered person performing
services on behalf of the Trust and acting within the scope of the Sponsor’s authority as set forth in the Trust Agreement.
In the event the Trust or
a series of the Trust is made a party to any claim, dispute, demand or litigation or otherwise incurs any loss, liability, damage, cost
or expense as a result of or in connection with any Shareholder’s (or assignee’s) obligations or liabilities unrelated to
Trust business, such Shareholder (or assignees cumulatively) shall indemnify, defend, hold harmless, and reimburse the Trust or the applicable
series of the Trust for all such loss, liability, damage, cost and expense incurred, including attorneys’ and accountants’
fees.
The payment of any amount
pursuant to the Trust Agreement shall take into account the allocation of liabilities and other amounts, as appropriate, among the series
of the Trust.
| Item 15. | Recent Sales of Unregistered Securities. |
None.
| Item 16. | Exhibits and Financial Statement Schedules. |
(a) Exhibits
Exhibit |
|
Number |
Description |
3.1 |
First Amended and Restated Declaration of Trust and Trust Agreement(1) |
5.1 |
Opinion of Chapman and Cutler LLP relating to the legality of the Shares * |
8.1 |
Opinion of Chapman and Cutler LLP with respect to federal income tax consequences * |
10.1 |
Form of Authorized Purchaser Agreement (included as Exhibit B to the First Amended and Restated Declaration of Trust and Trust Agreement)(1) |
10.2 |
Form of Distribution Services Agreement* |
10.3 |
Form of Custody Agreement* |
10.4 |
Form of Bitcoin Custody Agreement by and between the Trust, on behalf of the Fund, and [Gemini Trust Company, LLC]* |
10.6 |
Form of Fund Accounting Servicing Agreement* |
10.7 |
Form of Transfer Agent Servicing Agreement* |
10.8 |
Form of Fund Administration Servicing Agreement* |
10.9 |
Index License Agreement* |
10.10 |
Support Agreement* |
23.1 |
Consent of Tait, Weller, & Baker, LLP, Independent Registered Public Accounting Firm(3) |
23.2 |
Consent of Chapman and Cutler LLP is included in Exhibit 5.1* |
24.1 |
Power of Attorney (included on signature page to this Registration Statement as filed herein)(3) |
107 |
Filing Fee Table(2) |
(1) |
Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (333-273364), filed on July 21, 2023 and incorporated by reference herein. |
(2) |
Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (333-273364), filed on December [ ], 2023 and incorporated by reference herein. |
(3) |
Filed herewith. |
* |
To be filed by amendment. |
Item 17. Undertakings.
The undersigned Registrant
hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
Provided, however, that: (1)(i), (ii),
and (iii) of this section do not apply if the registration statement is on Form S-1, Form S-3, Form SF-3 or Form F-3 and the information
required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission
by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement, or, as to a registration statement on Form S-3, Form SF-3 or Form F-3, is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430B or other th