Registration No. 333-276125
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2
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.) |
| |
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) |
| |
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) |
| Copies to: |
|
Michael Pellegrino
Tidal Investments LLC
234 West Florida Street, Suite 203
Milwaukee, WI 53204
(844) 986-7700 |
|
Morrison C. Warren, Esq.
Chapman and Cutler LLP
320 South Canal Street
Chicago, Illinois 60060
|
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 |
☐ |
Accelerated filer |
☐ |
| Non-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 December 20, 2024
Nexo 7RCC Spot Bitcoin and Carbon Credit
Futures ETF
Common Shares of Beneficial Interest
The Fund. The
Nexo 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 U.S. Bank Global Fund Services (“Global Fund Services”) to be the Fund’s Sub-Administrator (the “Sub-Administrator”).
Foreside Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC (d/b/a ACA Group) (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”). Global Fund Services 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”),
a regulated third-party custodian that carries insurance and is chartered as a limited purpose trust company under the New York
Banking Law, as the custodian of the Fund’s bitcoins, and U.S. Bank, N.A. (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 NYSE Arca, Inc. (the “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 Carbon Credit Futures that comprise the Index, 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 Carbon Emissions Allowance,
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 for cash, and only to and from broker-dealers and large institutional investors that have entered into participation agreements
(“Authorized Purchasers”) on an ongoing basis. Subject to the Exchange receiving
the necessary regulatory approval to permit the Trust to create and redeem Shares in-kind for bitcoin (the “In-Kind Regulatory
Approval”), these transactions may also take place in exchange for bitcoin. The timing of the In-Kind Regulatory Approval
is unknown, and there is no guarantee that the Exchange will receive the In-Kind Regulatory Approval at any point in the future. If
the Exchange receives the In-Kind Regulatory Approval and if the Sponsor chooses to allow in-kind creations and redemptions, the Fund
will notify the owners of the beneficial interests of Shares (the “Shareholders”) in a prospectus supplement, in its
periodic Exchange Act reports and on the Fund’s website. 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 Arca, Inc.
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”—
Tait, Weller, & Baker, LLP
“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 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.
“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 New York Stock Exchange.
“Cap”—Maximum
level of GHG emissions for a certain group of entities as defined by a regulator.
“Carbon Credit
Futures”—Carbon credit futures contracts that comprise the Index
“CCMs”—Compliance
carbon markets established by governments and operate under a cap-and-trade system.
“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”
— NYSE Arca, Inc.; 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”—Nexo
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 0.68% 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”—
Foreside Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC (d/b/a ACA Group), 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”— U.S Bank, N.A.
“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 Advisers, 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”—
U.S. Bank Global Fund Services (“Global Fund Services”)
“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”—Global
Fund Services
“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 Nexo 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 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 regimes: the
European Union Carbon Emissions Allowance (“EU CEA”), the California Carbon Allowance (“CCA”), and Regional
Greenhouse Gas Initiative (“RGGI”). To obtain exposure to the EU CEA, the Index uses Intercontinental Exchange ( “ICE”)
EUA (Carbon Emission Allowances) futures (“EU CEA Carbon Credit Futures”). To obtain exposure to the CCA, the Index
uses ICE California Carbon Allowance Vintage Future contracts (“CCA Carbon Credit Futures”). To obtain exposure to
the RGGI, the Index uses ICE RGGI (CO2 allowances) futures contracts (“RGGI Carbon Credit Futures”).
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, i.e.,
the Index Pricing Sources, 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.
Purchases and Sales
of Bitcoin
Because the Fund will
conduct creations and redemptions of Shares for cash, it will be responsible for purchasing and selling bitcoin in connection with
those creation and redemption orders. The Fund may also be required to sell bitcoin to pay certain extraordinary, non-recurring
expenses that are not assumed by the Sponsor.
The Sponsor, on behalf
of the Fund, is responsible for acquiring bitcoin from a bitcoin trading counterparty that has been approved by, and entered into
an agreement with, the Sponsor (each, a “Bitcoin Trading Counterparty”), currently JSCT, LLC (which is an affiliate
of Jane Street Capital, LLC, an Authorized Purchaser for the Fund), DV Chain, LLC and Gemini. The Bitcoin Trading Counterparties
with which the Sponsor will engage in bitcoin transactions are unaffiliated third parties and all transactions will be done on
an arm’s-length basis. When seeking to purchase or sell bitcoin on behalf of the Fund, the Sponsor will typically seek to
buy and sell bitcoin at a price as close to the Bitcoin Price (defined below) as practical from any of the approved Bitcoin Trading
Counterparties. The Sponsor maintains a process for approving and monitoring Bitcoin Trading Counterparties, and all Bitcoin Trading
Counterparties must be approved by the Sponsor before the Fund will engage in any transactions with the entity.
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 CEA, 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, specifically, EU CEA Carbon Credit Futures,
CCA Carbon Credit Futures and RGGI Carbon Credit Futures. The Fund does not intend to invest in carbon credit futures specifically
linked to bitcoin mining or other related processes. As explained below, the Index rolls its Carbon Credit Futures contracts
prior to the expiration of such contract in December. 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 index provider, benchmark administrator and calculates the price of
bitcoin used by 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 calculation agent of the Index, and is also the index provider for each of the
sub-indexes that comprise the Index, as detailed below.
To calculate the value
of bitcoin, Vinter selects digital asset trading platforms meeting specific criteria (the “Index Pricing Sources”)
and takes the last price on each exchange at 4:00 pm ET. Vinter then calculates the median price across the Index Pricing Sources
to determine the value of bitcoin (the “Bitcoin Price”).
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: Solactive Future Series European Carbon Credit Rolling Futures Index (the “European Sub-index”), Solactive
Future Series California Carbon Rolling Futures Index (the “California Sub-index”), and the Solactive Future Series
Regional Greenhouse Gas Rolling Futures Index (the “RGGI Sub-index” and, collectively with the European Sub-index and
the California Sub-index, the “Sub-indexes”). The three underlying Sub-indexes provides the Index with returns tied
to futures contracts on carbon credits connected to EU CEA, CCA and RGGI. The Sub-indexes include only Carbon Credit Futures that mature
in the upcoming December. Each Sub-index includes front-month futures contracts that are rolled over a five-day period prior to the
expiration of the current-year futures contract and rolls into a contract with an expiration date of December of the immediately
following year. The Index rebalances quarterly to maintain the 80:20 percent ratio between bitcoin and Carbon Credit Futures in
March, June, September and December. The December rebalance of the Index is the business day that immediately follows the December
rolling of futures contracts of the Sub-indexes.
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, U.S. Bank, N.A. (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 custodial services 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 custodial 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 10% to 20% 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 use spot market or foreign exchange forwards and customary foreign
exchange hedging instruments to seek to remove its foreign currency exposure. 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 breakeven analysis is an approximation
only and assumes a constant month-end. 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 0.16% or $0.04. For purposes
of this breakeven analysis, an initial selling price of $25.00 per Share, is assumed. 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 Fund: |
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 Exchange or 4:00 p.m. (ET) on each day that the Exchange is open for trading.
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. ICE Data Indices, LLC 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 0.68% 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. To the extent the Sponsor sells bitcoin to permit payment of the Management Fee or other Fund expenses
and liabilities not assumed by the Sponsor, the amount of bitcoin held by the Fund will decline over time.
|
| Incidental Rights/IR Virtual Currency |
From time to time, the Fund may be entitled
to or come into possession of rights to acquire, or otherwise establish dominion and control over, any virtual currency (for avoidance
of doubt, other than bitcoin) or other asset or right, which rights are incident to the Fund’s ownership of bitcoins and
arise without any action of the Fund, or of the Sponsor or Delaware Trustee on behalf of the Fund (“Incidental Rights”)
and/or virtual currency tokens, or other assets or rights, acquired by the Trust through the exercise (subject to the applicable
provisions of the Trust Agreement) of any Incidental Right (“IR Virtual Currency”) by virtue of its ownership of bitcoins,
generally through a fork in the Bitcoin blockchain, an airdrop offered to holders of bitcoins or other similar event.
With respect to a fork, airdrop or similar
event, the Sponsor will cause the Fund to permanently and irrevocably abandon the Incidental Rights and IR Virtual Currency. In
the event the Trust seeks to change this position, an application would need to be filed with the SEC by the Exchange seeking approval
to amend its listing rules 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 Depository Trust Company (“DTC”) or distribute the Incidental
Rights or IR Virtual Currency in-kind to the DTC. Because the Fund will abandon any Incidental Rights and IR Virtual Currency,
the Fund would not receive any direct or indirect consideration for the Incidental Rights or IR Virtual Currency, and thus the
value of the Shares will not reflect the value of the Incidental Rights or IR Virtual Currency. See “Risk Factors—Risks
Related to Bitcoin, the Bitcoin Network, and Bitcoin Trading Markets— 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”. “
|
| 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 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 in accordance with the policy approved 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 Jane Street Capital,
LLC, Citadel Securities LLC and Goldman Sachs & Co. LLC, 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 and 2024, bitcoin prices have continued
to exhibit extreme volatility. The price of bitcoin reached new all-time highs in November 2024.
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.
Average
fees and settlement times may also increase when the number of bitcoin awarded for solving a new block is automatically halved
every 210,000 blocks. 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.
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 Purchasers 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 November 30, 2024, bitcoin was the largest digital asset by market capitalization and
had the largest combined mining power. Despite this first to market advantage, as of November 30, 2024, there were over 10,000
alternative digital assets tracked by CoinMarketCap.com, having a total market capitalization of approximately $3.41 trillion
(including the approximately $1.91 trillion 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,
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 Federal Deposit Insurance Corporation (“FDIC”) or Securities
Investor Protection Corporation (“SIPC”) and, therefore, neither, Shareholders cannot be assured that the Bitcoin
Custodian will maintain adequate insurance, that such coverage will cover losses with respect to the Fund’s bitcoins, 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. The Fund is not a named insured under the Bitcoin Custodian’s insurance policies, though the Bitcoin Custodian
has represented to the Sponsor that the insurance covers customer losses, including losses suffered by the Fund, arising from
specified events, including fraud, theft, and cyber-security breaches. 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, or the amount
of claims against the Bitcoin Custodian of all of the customers whose losses are covered by the Bitcoin Custodian’s insurance
coverage. 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 in various ways, including that the Bitcoin
Custodian cannot be held responsible for any failure or delay to act by the Bitcoin Custodian, its service providers, or its banks
that is within the time limits permitted by the Bitcoin Custody Agreement, or that is caused by the Fund’s negligence or
is required to comply with applicable laws and regulations. The Bitcoin Custodian is not liable for any System Failure or Downtime
(both as defined in the Bitcoin Custody Agreement), which prevents the Bitcoin Custodian from fulfilling its obligations under
the Bitcoin Custody Agreement, provided that Bitcoin Custodian took reasonable care and used commercially reasonable efforts to
prevent or limit such System Failures or Downtime and otherwise complied with the Bitcoin Custody Agreement. The Bitcoin Custody
Agreement provides that “Downtime” means scheduled maintenance and a “System Failure” shall mean a failure
of any computer hardware, software, computer systems, or telecommunications lines or devices used by the Bitcoin Custodian, or
interruption, loss, or malfunction of utility, data center, Internet or network provider services used by the Bitcoin Custodian;
provided, however, that a cybersecurity attack, data breach, hack, or other intrusion, or unauthorized disclosure by a third party,
the Bitcoin Custodian, a service provider to the Bitcoin Custodian, or an agent or subcontractor of the Bitcoin Custodian, shall
not be deemed a System Failure, to the extent such events or any losses arising therefrom are due to the Bitcoin Custodian’s
failure to comply with its obligations under the Bitcoin Custody Agreement. The Bitcoin Custodian cannot be held responsible for
any circumstances beyond the Bitcoin Custodian’s reasonable control, provided the Bitcoin Custodian took reasonable care
and used commercially reasonable efforts in executing its responsibilities to the Fund pursuant to the Bitcoin Custody Agreement,
which includes exercising the degree of care, diligence and skill that a prudent and competent professional provider of services
similar to the custodial services would exercise in the circumstances, or such higher care where required by law or the Bitcoin
Custody Agreement (collectively, the “Standard of Care”). The Bitcoin Custodian makes no guarantees regarding the
Bitcoin network’s security, functionality, or availability, and will not be liable for or in connection with any acts, decisions,
or omissions made by developers of the Bitcoin network. The Bitcoin Custodian is not liable for any losses or claims arising out
of actions that are in the Fund’s control and related to the Fund’s use of the Bitcoin Custodian’s online platform,
including but not limited to, the Fund’s failure to follow security protocols, the Bitcoin Custodian’s platform controls,
improper instructions, failure to secure the Fund’s credentials from third parties, or anything else in the Fund’s
control and is also not liable for any amount greater than the value of the assets on deposit in Fund’s account at the Bitcoin
Custodian at the time of, and directly relating to, the events giving rise to the liability occurred, the value of which shall
be determined in accordance with the Chicago Mercantile Exchange Bitcoin Reference Rate or any successor thereto. The Bitcoin
Custodian is not liable to the Fund (whether under contract, tort (including negligence) or otherwise) for any indirect, incidental,
special, punitive or consequential losses suffered or incurred by the Fund (whether or not any such losses were foreseeable).
The Bitcoin Custodian is not liable to the Fund or anyone else for any loss or injury resulting directly or indirectly from any
damage or interruptions caused by any computer viruses, spyware, scamware, trojan horses, worms, or other malware that may affect
the Fund’s computer or other equipment, provided such malware did not originate from the Bitcoin Custodian or its agents.
The Bitcoin Custody Agreement’s “Force Majeure” provision provides that the Bitcoin Custodian is not 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 including, but not limited to, any act of God, nuclear
or natural disaster, epidemic, action or inaction of civil or military authorities, act of war, terrorism, sabotage, civil disturbance,
strike or other labor dispute, accident, or state of emergency; provided, however, that for the avoidance of doubt, the Bitcoin
Custody Agreement’s Force Majeure provision shall not apply in respect of System Failures or Downtime, which are subject
to other respective provisions of the Bitcoin Custody Agreement. The occurrence of an event described in the Force Majeure provision
shall not affect the validity and enforceability of any remaining provisions of the Bitcoin Custody Agreement.
In
the event of potential losses incurred by the Fund as a result of the Bitcoin Custodian losing control of the Fund’s bitcoins
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. Furthermore, the insurance maintained by the Bitcoin Custodian may be insufficient
to cover its liabilities to the Fund. Both the Fund and the Bitcoin Custodian are required to indemnify each other under certain
circumstances.
Subject
to the Force Majeure provision and as limited by the limitations of liability in the Bitcoin Custody Agreement, the Bitcoin Custodian
shall be liable to the Fund for the Loss (defined below) of any of the Fund’s bitcoin or fiat currency to the extent that
such Loss was caused by the negligence, fraud, willful or reckless misconduct of the Bitcoin Custodian or breach by the Bitcoin
Custodian of its Standard of Care. The Bitcoin Custody Agreement provides that “Loss” means if, at any time the Fund’s
Bitcoin Account or Fiat Account, as applicable, does not hold the bitcoin or fiat currency that had been (1) received by Bitcoin
Custodian in connection with the Fund’s Bitcoin Account or Fiat Account pursuant to the Bitcoin Custody Agreement, or (2)
duly sent to the Bitcoin Custodian by the Fund or Authorized Participants in connection with the Fund’s Bitcoin Account
pursuant to the Bitcoin Custody Agreement but not received because of a failure caused by the Bitcoin Custodian. The Bitcoin Custody
Agreement provides that “Loss” shall include situations where the Bitcoin Custodian fails to execute a valid withdrawal
request, bitcoin are withdrawn from the Fund’s Bitcoin Account other than pursuant to a withdrawal request, or the Fund
is not able to timely withdraw bitcoin from the Bitcoin Account pursuant to a withdrawal request, in each case due to a failure
caused by the Bitcoin Custodian; provided, however, that the Bitcoin Custodian’s failure to permit timely withdrawals because
it has determined that it cannot do so due to the requirements of applicable laws and regulations or because of the operation
of its fraud detection controls shall not be considered a Loss, provided the Bitcoin Custodian is acting reasonably and in good
faith. The Bitcoin Custody Agreement provides that should a Loss of the Fund’s bitcoin or fiat currency due to the negligence,
fraud, willful or reckless misconduct of the Bitcoin Custodian or a breach by the Bitcoin Custodian of its Standard of Care occur,
the Bitcoin Custodian will, as soon as practicable, return to the Fund a quantity of the same digital asset that is equal to the
quantity of digital assets involved in the Loss, or return to the Fund a quantity of the same fiat currency that is equal to the
quantity of fiat currency involved in the Loss (if the Loss involved the Fiat Account). However, the Fund does not control the
Bitcoin Custodian and cannot guarantee that the Bitcoin Custodian will perform its obligations to the Fund under the Bitcoin Custody
Agreement, in a timely manner or at all. The Bitcoin Custody Agreement provides that (i) the Bitcoin Custodian does not own or
control the underlying software protocols of networks which govern the operation of digital assets (including the Bitcoin Blockchain),
(ii) the Bitcoin Custodian makes no guarantees regarding their security, functionality, or availability, and (iii) in no event
shall the Bitcoin Custodian be liable for or in connection with any acts, decisions, or omissions made by developers or promoters
of digital assets, including bitcoin.
Similarly,
under the Clearing Agreement, the Bitcoin Custodian’s liability in connection with the Clearing Services is limited as follows,
among others: the Bitcoin Custodian does not have any responsibility for any sale or purchase of bitcoin for cash to a Liquidity
Provider through the Clearing Services (such a transaction, a “Clearing Transaction”), other than as specifically
identified in the Clearing Agreement. The Bitcoin Custodian may rely upon, without liability on its part, any clearing request
submitted through Gemini’s platform. Absent gross negligence, willful misconduct or fraud, the Bitcoin Custodian shall not
be liable for any loss resulting from a clearing request or the use of Clearing Services. Validation and confirmation procedures
used by Gemini are designed only to verify the source of clearing requests and that each party has met its respective obligations
in respect of a clearing request and not to detect errors in the content of a clearing request or to prevent duplicate clearing
requests. The Fund is responsible for losses resulting from clearing requests provided by it and for any errors made by or on
behalf of the Fund, any errors resulting, directly or indirectly, from fraud or the duplication of any clearing request by or
on behalf of the Fund, or any losses resulting from the malfunctioning of any devices used by the Fund or loss or compromise of
credentials used by the Fund to deliver clearing requests. The Bitcoin Custodian may reject, refuse to settle or otherwise not
complete any request to settle a bitcoin transaction through the Clearing Services for any reason necessary to comply with applicable
laws and regulations or in connection with its fraud or other compliance controls and systems, and the Bitcoin Custodian shall
have no liability whatsoever to the Fund, any transaction counterparty or any other party in connection with or arising out of
the Bitcoin Custodian rejecting, refusing or otherwise not completing the settlement of a transaction through the Clearing Services.
The Bitcoin Custodian will not settle transactions through the Clearing Services: (i) if either party to a Clearing Transaction
has not fully funded its accounts held with the Bitcoin Custodian and used in connection with the Clearing Services (in the Fund’s
case, the Clearing Account and Fiat Account), as applicable, with the required fiat currency amount or bitcoin amount, as applicable,
prior to the agreed expiration time; (ii) if either party to a Clearing Transaction has not confirmed its acceptance of the clearing
request to the Bitcoin Custodian prior to the agreed expiration time; (iii) if either party to a transaction is not a Gemini customer;
or (iv) for any other reason as determined by the Bitcoin Custodian in its sole discretion to comply with applicable laws and
regulation or in connection with the Bitcoin Custodian’s fraud or other compliance controls and systems. Although the Bitcoin
Custodian has represented to the Sponsor that Clearing Transactions ordinarily settle automatically within minutes once the bitcoin
and cash have been funded by both the Fund and the Liquidity Provider in their respective accounts at the Bitcoin Custodian used
in connection with the Clearing Services (in the Fund’s case, the Clearing Account and Fiat Account), the Bitcoin Custodian
is not required by the Clearing Agreement to settle the Clearing Transaction that quickly. These and the other limitations on
the Bitcoin Custodian’s liability may allow it to avoid liability for potential losses, even if the Bitcoin Custodian directly
caused such losses.
The
Clearing Agreement provides that it is subject to Gemini’s User Agreement. Pursuant to Gemini’s User Agreement, Gemini
agrees to take reasonable care and use commercially reasonable efforts in executing Gemini’s responsibilities to the Fund
pursuant to the User Agreement, or such higher care where required by law or as specified by the User Agreement. Gemini uses commercially
reasonable efforts to provide the Fund with a reliable and secure platform. From time to time, interruptions, errors or other
deficiencies in service may occur due to a variety of factors, some of which are outside of our control. These factors can contribute
to delays, errors in service, or system outages, creating difficulties in accessing the Fund’s account, withdrawing fiat
currency or bitcoin, depositing fiat currency or bitcoin, and/or placing and/or canceling orders.
Under
the User Agreement, Gemini is not liable for any delays, failure in performance or interruption of service which result directly
or indirectly from any cause or condition, whether or not foreseeable, beyond Gemini’s reasonable control, including, but
not limited to, any act of God, nuclear or natural disaster, epidemic, action or inaction of civil or military authorities, act
of war, terrorism, sabotage, civil disturbance, strike or other labor dispute, accident, state of emergency or interruption, loss,
or malfunction of equipment or utility, communications, computer (hardware or software), Internet or network provider services.
Except
to the extent required by law, Gemini is not liable under the User Agreement, whether in contract or tort, for any punitive, special,
indirect, consequential, incidental, or similar damages, including lost trading or other profits, diminution in asset value, or
lost business opportunities (even if Gemini have been advised of the possibility thereof) in connection with the transactions
subject to the User Agreement. Gemini’s total liability for breach of the User Agreement shall be limited by the value of
any of the Fund’s allegedly lost fiat currency and digital assets in the custody of Gemini at the time of loss. Under the
User Agreement Gemini is not liable for delays or interruptions in service caused by automated or other compliance checks or for
other reasonable delays or interruptions in service, by definition to include any delay or interruption shorter than one week,
or delays or interruptions in service beyond the control of Gemini or its service providers. The limitation on liability under
the User Agreement includes, but is not limited to any damage or interruptions caused by any computer viruses, spyware, scamware,
trojan horses, worms, or other malware that may affect the Fund’s computer or other equipment, or any phishing, spoofing,
domain typosquatting, or other attacks, failure of mechanical or electronic equipment or communication lines, telephone or other
interconnect problems (e.g., you cannot access your internet service provider), unauthorized access, theft, operator errors, strikes
or other labor problems, or any force majeure. Gemini does not guarantee continuous, uninterrupted, or secure access to Gemini.
Gemini is not responsible for any failure or delay to act by any Gemini service provider, including Gemini’s banks, or any
other participant that is within the time limits permitted by the User Agreement or prescribed by law, or that is caused by the
Fund’s negligence.
Under
the User Agreement, Gemini is not responsible for any “System Failure” (defined as a failure of any computer hardware
or software used by Gemini, a Gemini service provider, or any telecommunications lines or devices used by Gemini or a Gemini service
provider), or scheduled or unscheduled maintenance or downtime, which prevents Gemini from fulfilling its obligations under the
User Agreement, provided that Gemini used commercially reasonable efforts to prevent or limit such System Failures, or downtime.
Gemini cannot be held responsible for any other circumstances beyond Gemini’s reasonable control.
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.
The
Bitcoin Custody Agreement contains an agreement by the parties to treat the bitcoin credited to the Fund’s Vault Balance
as financial assets under Article 8 of the New York Uniform Commercial Code (“Article 8”), in addition to stating
that the Bitcoin Custodian will serve as fiduciary and custodian on the Fund’s behalf. It is possible that a court would
not treat custodied digital assets as part of the Bitcoin Custodian’s general estate in the event the Bitcoin Custodian
were to experience insolvency. However, 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. In the case of the Clearing Account, because it is an omnibus account in which the assets of multiple customers –
including the Fund’s assets – are held together, it is likely the Fund would be treated as a general unsecured creditor
in respect of the Clearing Account held with the Bitcoin Custodian in the event of the Bitcoin Custodian’s insolvency. The
Clearing Agreement does not contain an Article 8 opt-in. 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 Fund 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 gross negligence or bad faith on the part of the Trustee or
the Sponsor or breach by the Sponsor of the Fund 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, neither 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. 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 Fund 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 Fund.
If
the Bitcoin Network is used to facilitate illicit activities or evade sanctions, businesses
that facilitate transactions in bitcoin could be at increased risk of criminal or civil lawsuits, or of having services cut off,
which could negatively affect the price of bitcoin and the value of the Shares.
Digital
asset networks have in the past been, and may continue to be, used to facilitate illicit activities. If the Bitcoin
Network is used to facilitate illicit activities or evade sanctions, businesses that facilitate transactions in bitcoin
could be at increased risk of potential criminal or civil lawsuits, or of having banking or other services cut off, and bitcoin
could be removed from digital asset trading platforms as a result of these concerns. Other service providers of such businesses
may also cut off services if there is a concern that the Bitcoin Network is being used to
facilitate crime. Any of the aforementioned occurrences could increase regulatory scrutiny of the Bitcoin
Network and/or adversely affect the price of bitcoin, the attractiveness of the Bitcoin Network
and an investment in the Shares of the Trust.
The
Fund and the Sponsor, acting on behalf of the Fund, directly interact with parties that are themselves subject to AML program
requirements under the Bank Secrecy Act or similar laws.
The
Authorized Purchasers are registered broker-dealers or financial institutions exempt from broker-dealer registration and therefore
are subject to AML and countering the financing of terrorism obligations under the Bank Secrecy Act as administered by FinCEN
and further overseen by the SEC and FINRA. In accordance with its regulatory obligations, the Authorized Purchasers conduct customer
due diligence.
When
the Fund and the Sponsor, acting on behalf of the Fund, buy, sell or deliver, as applicable, bitcoin, they transact directly with
financial institution counterparties that are subject to U.S. federal and/or state licensing requirements or similar laws in non-U.S.
jurisdictions and maintain practices and policies designed to comply with AML and KYC regulations or similar laws in non-U.S.
jurisdictions. The Fund will not hold any bitcoin except those that have been delivered by the Fund’s Bitcoin Trading Counterparties
in connection with creation requests.
If
the Sponsor, the Fund, or an Authorized Purchaser were nevertheless to transact with such a sanctioned entity, the Sponsor, the
Fund, and such Authorized Purchaser would be at increased risk of potential criminal or civil lawsuits.
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.
Governments
around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of GHGs. Lawmakers
and regulators in the jurisdictions in the United States and Europe have proposed or enacted regulations requiring reporting of
greenhouse gas emissions and the restriction thereof. In addition, efforts have been made and continue to be made in the international
community toward the adoption of international treaties or protocols that would address global climate change issues and impose
reductions of hydrocarbon-based fuels, and encouraging the implementation of net-zero GHG emission pledges.
In
recent years, the U.S. Congress has considered legislation to reduce emissions of GHGs and has included climate change considerations
in its funding bills. For example, the Inflation Reduction Act of 2022, which appropriates significant federal funding for renewable
energy initiatives, was signed into law in August 2022 and could accelerate the transition away from fossil fuels. In November
2021, the Biden Administration released “The Long-Term Strategy of the United States: Pathways to Net-Zero Greenhouse Gas
Emissions by 2050,” which establishes a roadmap to net zero emissions in the United States by 2050 through, among other
things, improving energy efficiency, decarbonizing energy sources via electricity, hydrogen and sustainable biofuels, eliminating
subsidies provided to the fossil fuel industry, reducing non-CO2 GHG emissions and increasing the emphasis on climate-related
risks across government agencies and economic sectors.
At
the international level, the United States re-entered the United Nations-sponsored “Paris Agreement,” a non-binding
agreement for nations to limit their greenhouse gas emissions through individually determined reduction goals every five years
after 2020, shortly after President Biden took office in February 2021. Then, in April 2021, President Biden announced a new,
more rigorous nationally determined emissions reduction level of 50%-52% reduction from 2005 levels in economy-wide net GHG emissions
by 2030. The international community has since gathered again in November 2021, November 2022, and December 2023 for the annual
United Nations Climate Change Conference of the Parties, where the U.S., the European Union, and other partners announced reaffirmed
their emissions reduction commitments and made further climate change goals. Most recently, the parties agreed to transition “away
from fossil fuels in energy systems in a just, orderly and equitable manner” and increase renewable energy capacity so as
to achieve net zero by 2050, although no timeline for doing so was set. The impacts of these orders, pledges, agreements and any
legislation or regulation promulgated to fulfill the U.S.’s commitments under the Paris Agreement or other international
conventions cannot be predicted at this time.
The
proposed rules and initiatives addressing climate change described above are subject to intense political debate and their adoption
or implementation will likely be impacted by the change in presidential administration resulting from the 2024 United States presidential
election.
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. For example, regulatory changes to
the CCM or VCM regimes to which the Carbon Credit Futures are tied, including changes to target emission levels, the emission
sources and greenhouse gases covered by the regime, the allowance allocation system, the ability to “bank” allowances
for or “borrow” allowances from a future year, and the types of offsets permitted to lower the overall costs of meeting
the emission cap, among others, could impact the cost of reducing emissions levels and, as a result, the cost of emissions credits
and may adversely impact 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 CEA
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
fragmented nature of data regarding the European Union carbon market and the lack of a centralized market monitoring of the European
Union carbon market may make it more difficult to identify potential market manipulation and abusive practices.
Due
to the existing legal framework, data regarding the European Union carbon market is fragmented, with each available dataset having
a specific scope regarding the counterparties and types of instruments covered. Additionally, while all EU CEA operations have
been centralized into a single EU registry operated by the EU Commission (the “Union Registry”) in 2012, there is
no centralized market monitoring of the EU Carbon Market and is instead largely conducted by individual EU member states, namely
Germany, Netherlands and Norway.
As
a result of this lack of centralized market monitoring of the EU carbon market at the EU level, 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 EUA markets or may not exist at all. As a result of reduced oversight, these schemes may be
more prevalent in EUA markets than in the general market for financial products. The potential consequences of the EUA market’s
failure or failure to prevent market manipulation could adversely affect the value of the Shares. Any market abuse, and a loss
of investor confidence in EUAs, may adversely impact pricing trends in EUA markets broadly, as well as an investment in Shares
of the Fund.
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.]
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 Purchasers 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 Purchaser is responsible
for the dollar cost of such difference in prices, Authorized Purchasers could default on their obligations to the Fund, or such
potential risks and costs could lead to Authorized Purchasers, 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 Purchasers 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 or Minnesota law, as applicable, 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 develop. To the extent that no active trading market develops
and the assets of the Trust do not reach a viable size, the liquidity of the Shares may be limited or the Trust may be terminated
at the option of the Sponsor.
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 assets at a time that is disadvantageous to Shareholders. If the Fund fails to achieve sufficient scale due
to competition, the Sponsor may have difficulty raising sufficient revenue to cover the costs associated with launching and maintaining
the Fund, and such shortfalls could impact the Sponsor’s ability to properly invest in robust ongoing operations and controls
of the Fund to minimize the risk of operating events, errors, or other forms of losses to the 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. In addition, the Fund may
also fail to attract adequate liquidity in the secondary market due to such competition, resulting in a sub-standard number of
Authorized Purchasers willing to make a market in the Shares, which in turn could result in a significant premium or discount
in the Shares for extended periods and the Fund’s failure to achieve its investment objective.
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,
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 replicate three sub-indexes and provide exposure to the value of emissions
allowances issued under the following cap-and-trade regimes: the European Union Carbon Emissions Allowance (“EU CEA”),
the California Carbon Allowance (“CCA”), and Regional Greenhouse Gas Initiative (“RGGI”). To obtain exposure
to the EU CEA, the Index uses Intercontinental Exchange (“ICE”) EUA (Carbon Emission Allowances) futures (“EU
CEA Carbon Credit Futures”). To obtain exposure to the CCA, the Index uses ICE California Carbon Allowance Vintage Future
contracts (“CCA Carbon Credit Futures”). To obtain exposure to the RGGI, the Index uses ICE RGGI (CO2 allowances)
futures contracts (“RGGI Carbon Credit Futures”).
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:
| ● | Bitstamp.
Bitstamp, founded in 2011, is a cryptocurrency trading platform headquartered in
Luxembourg City, Luxembourg. It allows trading between fiat currencies and cryptocurrencies
such as Bitcoin, Ethereum, and others. In April 2016, Bitstamp received a license from
the Luxembourg government to operate as a fully regulated payment institution across
all 28 EU member states. |
| ● | BTSE:
BTSE, established in 2018, is a cryptocurrency trading platform that offers spot
and futures trading along with OTC trading and multiple settlement channels. BTSE is
capable of 1 million requests per second with self-hosted infrastructure. In 2023, BTSE
received an official regulatory registration under the Token and Trustworthy Technology
Service Provider Act (TVTG) in Lichtenstein. |
| ● | Coinbase.
Coinbase, established in 2012, is a cryptocurrency trading platform based in San Francisco,
California, USA. It offers a platform for buying, selling, and storing various cryptocurrencies.
Coinbase is registered as a Money Services Business with FinCEN in the United States
and complies with applicable state money transmission laws and regulations. In April
2023, Coinbase’s Bermuda division was licensed to operate cryptocurrencies in Bermuda. |
| ● | Crypto.com.
Crypto.com, founded in 2016, is a cryptocurrency trading platform headquartered in
Singapore. It provides a platform for trading, investing, and using cryptocurrencies.
In North America, Crypto.com is registered as a Money Services Business with FINTRAC
in Canada and FinCEN in the United States. It also holds Money Transmitter Licenses across
various U.S. states. In Europe, the company received approval from the UK’s Financial
Conduct Authority in August 2022 and operates under the Electronic Money Institution
license in several European Economic Area countries. |
| ● | EXMO.
EXMO, established in 2014, is headquartered in London, UK and has offices in Kyiv,
Ukraine. The exchange has a daily trading volume of $60 million with over 1 million KYCed
users. The trading platform also offers OTC trading services and an Earn program. EXMO
complies with European regulations as a registered provider in Lithuania. Recently, it
paused services for UK customers due to new FCA regulations. |
| ● | Gemini.
Gemini, established in 2014, is a cryptocurrency trading platform based in New York City,
USA. It offers a platform for buying, selling, and storing digital assets. Gemini is
regulated by the New York State Department of Financial Services and was the first U.S.-based
licensed Ethereum trading platform. In May 2023, Gemini announced that Dublin, Ireland,
would be the location for its European headquarters. |
| ● | itBit.
itBit, founded in 2013, is a cryptocurrency trading platform headquartered in New York
City, USA. It offers trading services for various digital assets. itBit is regulated
by the New York State Department of Financial Services and operates under a trust charter,
allowing it to offer services across the United States. |
| ● | Kraken.
Kraken, established in 2011, is a cryptocurrency trading platform based in San Francisco,
California, USA. It provides a platform for trading a wide range of digital assets. In
the United States, Kraken is registered as a Money Services Business with FinCEN. In
the United Kingdom, Kraken operates as a Financial Conduct Authority (FCA) Registered
Cryptoasset Firm under the Money Laundering Regulations. |
| ● | LMAX
Digital. LMAX Digital, launched in 2018, is the cryptocurrency arm of LMAX Group,
a financial technology company headquartered in London, UK. It offers institutional spot
cryptocurrency trading services. LMAX Digital is regulated by the Gibraltar Financial
Services Commission as a Distributed Ledger Technology provider for execution and custody
services. |
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. As of December 12, 2024, each Index Pricing Source had the below volume and market
share:
| Index
Pricing Source |
Volume
(BTC) |
Volume
(Percentage Market Share) |
| Crypto.com |
1,699.56 |
43.87% |
| Coinbase |
1,143.07 |
29.51% |
| LMAX
Digital |
440.40 |
11.38% |
| BTSE |
204.04 |
5.26% |
| Kraken |
203.90 |
5.26% |
| Gemini |
87.41 |
2.25% |
| Bitstamp |
86.88 |
2.24% |
| itBit |
5.55 |
0.14% |
| EXMO |
2.80 |
0.07% |
Once
it has actual knowledge of changes to the Index Pricing Sources used to calculate the Bitcoin Price, the Fund will notify Shareholders
in a prospectus supplement and a current report on Form 8-K or in its annual or quarterly reports.
The
Sponsor, in its sole discretion, may cause the Fund to price its portfolio based upon an index, benchmark or standard other than
the Index and the Bitcoin Price at any time, with prior notice to the Shareholders, if investment conditions change or the Sponsor
believes that another index, benchmark or standard better aligns with the Fund’s investment objective and strategy. The
Sponsor may make this decision for a number of reasons, including, but not limited to, a determination that the Bitcoin Price
of bitcoin differs materially from the global market price of bitcoin and/or that third parties are able to purchase and sell
bitcoin on public or private markets not included among the Index Pricing Sources, and such transactions may take place at prices
materially higher or lower than the Bitcoin price. The Sponsor, however, is under no obligation whatsoever to make such changes
in any circumstance. In the event that the Sponsor intends to establish the Fund’s NAV by reference to an index, benchmark
or standard other than the Index, it will provide Shareholders with notice in a prospectus supplement and/or through a current
report on Form 8-K or in the Fund’s annual or quarterly reports.
Purchases
and Sales of Bitcoin
Because
the Fund will conduct creations and redemptions of Shares for cash, it will be responsible for purchasing and selling bitcoin
in connection with those creation and redemption orders. The Fund may also be required to sell bitcoin to pay certain extraordinary,
non-recurring expenses that are not assumed by the Sponsor.
The
Sponsor, on behalf of the Fund, will typically seek to buy and sell bitcoin at a price as close to the Bitcoin Price as practical.
When choosing between potential counterparties, the Sponsor may consider factors other than simply the most favorable price. However,
the most favorable price will be the predominant factor in determining the counterparty with which the Sponsor effectuates the
contemplated transaction. Other factors that the Sponsor may consider include the size of the proposed order, as well as a counterparty’s
execution capabilities, reliability and responsiveness.
The
Authorized Purchasers will deliver only cash to create Shares and will receive only cash when redeeming Shares. Further, Authorized
Purchasers involved in a creation or redemption order will not directly or indirectly purchase, hold, deliver, or receive bitcoin
as part of the creation or redemption process or otherwise direct the Fund or a third party with respect to purchasing, holding,
delivering, or receiving bitcoin as part of the creation or redemption process for such order. Additionally, the Fund will create
Shares by receiving bitcoin from a third party that is not the Authorized Purchaser involved in the order, and the Sponsor, on
behalf of the Fund—not the Authorized Purchaser—is responsible for selecting the third party to deliver the bitcoin.
Further, the third party will not be acting as an agent of the Authorized Purchaser with respect to the delivery of the bitcoin
to the Fund or acting at the direction of the Authorized Purchaser with respect to the delivery of the bitcoin to the Fund. Additionally,
the Fund will redeem Shares by delivering bitcoin to a third party that is not the Authorized Purchaser and the Sponsor, on behalf
of the Trust—not the Authorized Purchaser—is responsible for selecting the third party to receive the bitcoin. Further,
the third party will not be acting as an agent of the Authorized Purchaser with respect to the receipt of the bitcoin from the
Fund or acting at the direction of the Authorized Purchaser with respect to the receipt of the bitcoin from the Fund.
Bitcoin
Trading Counterparties. The Sponsor, on behalf of the Trust, is responsible for acquiring bitcoin from a bitcoin trading counterparty
that has been approved by the Sponsor (each, a Bitcoin Trading Counterparty). JSCT, LLC (which is an affiliate of Jane Street
Capital, LLC, an Authorized Purchaser for the Fund), DV Chain, LLC and Gemini are currently the Fund’s Bitcoin Trading Counterparties.
The Bitcoin Trading Counterparties with which the Sponsor will engage in bitcoin transactions are unaffiliated third parties and
all transactions will be done on an arm’s-length basis. Bitcoin Trading Counterparties are not required to have an account
with the Custodians.
When
seeking to purchase or sell bitcoin on behalf of the Fund, the Sponsor will typically seek to buy and sell bitcoin at a price
as close to the Bitcoin Price as practical from any of the approved Bitcoin Trading Counterparties. Upon notification that the
Fund needs to purchase or sell bitcoin, the Sponsor will reach out to various Bitcoin Trading Counterparties and ask them for
a quote regarding the terms at which they would be willing to execute the contemplated transaction. The Sponsor then determines
the Bitcoin Trading Counterparty with which it wishes to transact and records the rationale for that determination. Once agreed
upon, the transaction will generally occur on an “over-the-counter” basis. In the event that the Fund engages other
Bitcoin Trading Counterparties, transfers of bitcoin may be conducted as “on-chain” transactions represented on the
bitcoin Blockchain.
The
Sponsor maintains a process for approving and monitoring Bitcoin Trading Counterparties. All Bitcoin Trading Counterparties must
be approved by the Sponsor before the Fund will 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.
The Sponsor has instituted policies and procedures to evaluate which Bitcoin Trading Counterparties to approve.
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 CEA, CCA and RGGI include EU CEA Carbon Credit Futures, CCA Carbon Credit Futures and RGGI Carbon Credit Futures.
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 CEA, CCA and RGGI are below:
| ● | EU
CEA: EU CEA 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. The
EU CEA is a cap & trade mechanism that was launched in 2005 and has become the largest
GHG trading mechanism in the world, covering approximately 11,000 installations generating
carbon emissions in certain sectors, such as power generation, utilities, iron, steel,
and cement. Under the mechanism, each country has a national allocation plan that determines
the caps on GHG emissions for each participating entity. |
Participants
are allocated some free European Union Allowances (“EUAs”) and may purchase a proportion through auction. Participants
have to monitor their emissions and after each year submit EUAs equivalent to their verified emissions. Participants that do not
have sufficient EUAs can buy them from other participants that have a surplus, or within certain limits, use other eligible carbon
credits for compliance purposes instead of EUAs. EUAs are allocated under the National Allocation Plan of each country within
the EU CEA. Each EUA represents one tonne of CO2 or the equivalent amount of nitrous oxide (N2O) and perfluorocarbons (PFCs) (“CO2e”).
The
EU CEA began with a first Phase running from 2005 to 2007. Phase II of the mechanism is in line with the first Kyoto period and
ran from 2008-2012. Phase III ran between 2013 to 2020. Phase IV commenced in 2021 and will run until 2030. Allocations in Phase
II were reduced from their respective levels in Phase I to ensure that they were consistent with meeting national Kyoto targets.
In Phase III, while some participants were still allocated free allowances, auctioning is the default method for allocating allowances.
In addition, EU legislation enables banking of credits between Phases (e.g., from Phase II to Phase III, although this was not
possible between Phase I and Phase II).
In
2023, the EU adopted and implemented important reforms of the EU CEA framework as part of: the “Fit for 55” package,
to align the system with the EU’s 2030 climate target of at least 55% net emissions reductions compared to 1990 levels and
the European Green Deal objectives, the EU’s response to the energy crisis caused by Russia’s invasion of Ukraine
(“REPowerEU” plan).
EUA
pricing is set by supply and demand. Supply is determined by EUAs and other carbon credits (CERs, EUAs) which are available to
the market. Demand is determined by the volume of carbon emitted during the year in relation to the annual allocation. The main
factors influencing volumes emitted in the short-term are the weather, relative fuel prices, general economic activity and the
amount of electricity generated from non-fossil fuel sources. The bulk of exchange trading activity in EUAs is concentrated on
the ICE Endex Energy exchange (“ICE”).
| ● | CCA:
The CCA cap-and-trade regime is designed to reduce greenhouse gas (“GHG”)
emissions from major sources (covered entities) by setting a firm cap on statewide GHG
emissions while employing market mechanisms to cost-effectively achieve the emission-reduction
goals. The statewide cap for GHG emissions from major sources, which is measured in metric
tons of carbon dioxide equivalent (MTCO2e), commenced in 2013 and has declined over time,
achieving GHG emission reductions throughout the program’s duration. Each covered
entity will be required to surrender one permit to emit (the majority of which will be
allowances, entities are also allowed to use a limited number of ARB offset credits)
for each ton of GHG emissions they emit. Certain covered entities will be allocated allowances
and will be able to buy additional allowances at auction, purchase allowances from others,
or purchase offset credits. |
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
RGGI is composed of individual CO2 Budget Trading Programs in each participating state. Through independent regulations, based
on the RGGI Model Rule, each state’s CO2 Budget Trading Program limits emissions of CO2 from electric power plants, issues
CO2 allowances and establishes participation in regional CO2 allowance auctions. Within the RGGI states, fossil-fuel-fired electric
power generators with a capacity of 25 megawatts1 or greater (“regulated sources”) are required to hold allowances
equal to their CO2 emissions over a three-year control period.
A
CO2 allowance represents a limited authorization to emit one short ton of CO2 from a regulated source, as issued by a participating
state. Regulated sources can use a CO2 allowance issued by any participating state to demonstrate compliance in any state. They
may acquire allowances by purchasing them at regional auctions, or through secondary markets. For 2024, the RGGI cap for the eleven
participating states is 157,184,044 CO2 allowances and the adjusted cap is 142,422,869 CO2 allowances.
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 DCMs utilized
by the Fund will be Chicago Mercantile Exchange (“CME”), Intercontinental Exchange, Inc. and EUREX. The DCOs utilized
by the Fund are CME Clearing, ICE Clear, and LCH Clearnet. 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 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 use spot market or foreign exchange forwards and customary foreign exchange hedging instruments to seek to remove
its foreign currency exposure. 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.
As
an example, assume that a Creation Basket is sold by the Fund, and that the Fund’s closing NAV per Share is $25.00. In that
case, the Fund would receive $25,000 in proceeds from the sale of the Creation Basket ($25.00 NAV per Share multiplied by 10,000
Shares and ignoring the transaction fee of $[__]). The Sponsor would allocate 80% of the proceeds to bitcoin ($20,000) and 20%
to Carbon Credit Futures ($5,000) in proportion to those represented in the Index. Assuming a margin requirement equal to 10%
of the value of the Carbon Credit Futures (the amount of margin required for Carbon Credit Futures varies by contract and exchange),
the Fund would be required to deposit $500 in cash with the FCM through which the Carbon Credit Futures were purchased. The remainder
of the proceeds from the sale of the Creation Basket allocated to the Fund’s carbon investments (i.e., 20% of the
value of the Creation Basket), $4,500, would remain invested in cash, and/or cash equivalents as determined by the Sponsor from
time to time based on factors such as potential calls for margin or anticipated redemptions. The above notwithstanding, the Fund
invests in Carbon Credit Futures that comprise each of the Solactive subindices (see below for additional information), in weights
reflected by the Index. As of the date of this prospectus, 11% of the Index is comprised of EU CEA Carbon Credit Futures, 8% of
the Index is comprised of CCA Carbon Credit Futures that reference CCA and 1% of the Index is comprised of RGGI Carbon Credit
Futures. Accordingly, of the $5,000 in proceeds indicated above, $2,750 would be allocated to EU CEA Carbon Credit Futures (of
which, assuming a 10% margin requirement, $275 would be deposited in cash with the FCM), $2,000 would be allocated to CCA Carbon
Credit Futures (of which, assuming a 10% margin requirement, $200 would be deposited in cash with the FCM) and $250 would be allocated
to RGGI Carbon Credit Futures (of which, assuming a 10% margin requirement, $25 would be deposited in cash with the FCM). In the
event of a redemption order, the Fund would liquidate the necessary Carbon Credit Futures necessary to cover the portion of the
redemption order, and similarly sell the necessary amount of bitcoin, which in aggregate, would cover the funds to meet the redemption
request and maintain the 80%/20% weightings of bitcoin and Carbon Credit Futures represented by the Index. As an example, assume
that the Fund receives a redemption request for a Basket and that the Fund’s closing NAV per Share is $25.00. The Fund would
need to raise $25,000 in cash to meet such redemption request ($25.00 NAV per Share multiplied by 10,000 Shares and ignoring the
transaction fee of $[__]). The Sponsor would instruct the sale of $20,000 worth of bitcoin and $5,000 worth of notional value
of the respective Carbon Credit Futures to maintain the appropriate exposure to the Index. The proceeds of such sales would be
used for the redemption order.
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. The Index does not provide
exposure to futures contracts that are specifically linked to bitcoin mining or other related processes. Vinter is the index provider,
benchmark administrator and calculates the Bitcoin Price. Vinter is also the central recipient of input data and evaluates the
integrity and accuracy of the input data. Solactive is the calculation agent of the Index and is also the index provider of each
of the Sub-indexes detailed below. Bitcoin is valued in accordance with the procedures outlined above in “Investment Objective
and Investment Strategy — Principal Investment Strategies — Bitcoin Valuation”. The Index is calculated on any
day the NYSE is open for trading. The Index value will be calculated at 4:00 p.m. ET, and published after 4:10 ET on such days.
Bitcoin
represents 80% of the value of the Index with the remaining 20% represented by various interests in 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: Solactive Future Series European Carbon Credit Rolling Futures Index (the “European Sub-index”),
Solactive Future Series California Carbon Rolling Futures Index (the “California Sub-index”), and the Solactive Future
Series Regional Greenhouse Gas Rolling Futures Index (the “RGGI Sub-index” and, collectively with the European Sub-index
and the California Sub-index, the “Sub-indexes”). The combination of exposure to the three underlying indices provides
the Index with returns tied to futures contracts on carbon credits connected to EU CEA, CCA and RGGI. Solactive calculates the
value of the Carbon Credit Futures for the Index in accordance with the valuation of the Carbon Credit Futures Sub-indexes, detailed
below. The Carbon Credit Futures represented by the European Sub-index are denominated in euros, however the Index is published
in U.S. dollars. The European Sub-index employs the 4:00 p.m. London WM/Reuters Fixing to convert the value of the European Sub-index
in euros to a value in U.S. dollars. For additional information regarding each of the European Sub-index, California Sub-index
and RGGI Sub-index, please see “Carbon Credit Futures Sub-indexes” below).
The
Sub-indexes include only Carbon Credit Futures that mature in the upcoming December. Specifically, each Sub-index includes front-month
futures contracts that are rolled over a five day period prior to the expiration of such contracts in December to new contracts
that expire in December of the subsequent year. For example, if the specific Sub-index holds front-month Carbon Credit Futures
that expire in December 2025, when such contracts approach their expiration date, the Sub-index will roll such contracts into
Carbon Credit Futures that expire in December 2026.
The
Index does not equally weight its exposure to the Carbon Credit Futures that comprise the Sub-indexes. Rather it seeks exposure
to the reference carbon credits proportional to the trading volume of the back-month Carbon Credit Futures over the last 22 trading
days prior to the December rebalancing. As of the date of this prospectus, 11% of the Index is comprised of EU CEA Carbon Credit
Futures, 8% of the Index is comprised of CCA Carbon Credit Futures that reference CCA and 1% of the Index is comprised of RGGI
Carbon Credit Futures. The below table provides the volume and allocation for the specific Carbon Credit Futures on ICE as of
December 12, 2024:
| Carbon
Credit Futures |
Volume |
Allocation |
| EU
CEA Carbon Credit Futures |
23,493 |
11% |
| CCA
Carbon Credit Futures |
5,129 |
8% |
| RGGI
Carbon Credit Futures |
393 |
1% |
The
Index rebalances quarterly in March, June, September and December. The December rebalance of the Index is the business day
immediately following the roll of Carbon Credit Futures for each of the Sub-indexes. 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.
The
Fund will notify Shareholders of any material change in the methodology of the Index or the respective Sub-indexes in a prospectus
supplement and/or a current report on Form 8-K or in its annual or quarterly reports.
Carbon
Credit Futures Sub-indexes. The Sub-indexes are excess return indexes that roll exposure to the underlying futures contracts
over five days. The European Sub-index seeks to track the performance of the Intercontinental Exchange (Carbon Emission Allowances)
futures. The California Sub-index seeks to track the performance of the ICE California Carbon Allowance Vintage Future contracts.
The RGGI Sub-index seeks to track the performance of the ICE RGGI (CO2 allowances) futures contracts. Each Sub-index has been
calculated back to a start date of January 16, 2024 (the “Start Date”) and the initial level of each Sub-index on
the Start Date was 100. The Sub-indexes are owned, calculated, administrated, and published by Solactive AG assuming the role
as index owner and index administrator under the Regulation (EU) 2016/1011.
The
levels of each Sub-index is calculated on each day on which the ICE Futures U.S. is open for general business (the “Calculation
Day”) based on the trading prices on the ICE Futures U.S. on which the futures contracts currently reflected in the respective
Sub-index (the “Sub-index Components”) are listed. The levels for the RGGI Sub-index and California Sub-index are
calculated on each Calculation Day from 3:00 to 18:00 ET. The level for the European Sub-index is calculated on each Calculation
Day from 8:00 to 19:00 ET. In addition to the intraday calculation, a closing level of the Sub-indexes for each Calculation Day
is also calculated. This closing level is calculated based on the Settlement Level of the Sub-index Components on the exchange
on which the Sub-index Components are listed. The “Settlement Level” is an underlying security’s final regular-hours
price at which a futures contract will reference at the end of each Calculation Day and upon its expiration published by the ICE
Futures U.S. and determined in accordance with the ICE Futures U.S. regulations. In the event that a Sub-index Component is affected
by a trading halt or an unplanned market closure, the Sub-index will keep the price of such component at its last observed trading
price until further notice. In this context, Solactive does not distinguish between voluntary and regulatory trading halts, nor
does it take into account the reason for a particular trading halt.
Sub-index
Components are selected according to the Roll Period (defined below) and in accordance with each Sub-index’s pre-determined
roll schedule (the “Roll Schedule”). The replacement of the current active contract as set forth in the Roll Schedule
(the “Active Contract”) by the next active contract as set forth in the Roll Schedule (the “Next Active Contract”)
will be implemented over a five-day roll period (the “Roll Period”). The Roll Period starts on the Trading Day (defined
as a day on which the respective Sub-index is open for trading (or a day that would have been such a day if a market disruption
had not occurred) (the “Roll Start Date”), excluding days on which trading may be ceased prior to the normal Sub-index
closing time) preceding the expiry day of the Active Contract by fifteen Trading Days. The Contract Roll Weight of the Active
Contract is then decreased by 1/5 after the close of each Trading Day of the Roll Period starting at 100% while the Contract Roll
Weight of the Next Active Contract is increased by 1/5 after the close of each Trading Day of the Roll Period starting at 0%.
After the end of the Roll Period (inclusive of the Trading Day which is five days after the Roll Start Date (the “Roll End
Date”)) the Next Active Contract becomes the Active Contract.
Once
the expiry date (the “Roll Anchor”), anchort as of Calculation Day t is determined, in relation
to Calculation Day t, the Roll Start, RollStartt, is set to negative 15 (the “Roll Offset”)
plus one Calculation Day before anchort.
Roll
End, RollEndt, as of Calculation Day t is set to be exactly the number of “Roll Days” many
Calculation Days after Roll Start, RollStartt.
In
relation to Calculation Day t, the Contract Roll Weight of the Active Contract is calculated as follows: #
In
relation to Calculation Day t _the Contract Roll Weight of the Next Active Contract is calculated as
follows:
Roll
Anchor would be set to the Active Contract’s expiration date. Therefore, Roll Start would be the fifteenth last day before
expiration.
| Weekday |
Mon |
Tue |
Wed |
Thu |
Fri |
Mon |
Tue |
Wed |
Thu |
Fri |
| Named Day |
|
|
Roll Start |
|
|
|
|
Roll End |
|
Roll Anchor |
| Weight
of the Active Contract |
100% |
100% |
100% |
80% |
60% |
40% |
20% |
0% |
0% |
0% |
| Weight
of the Next Active Contract |
0% |
0% |
0% |
20% |
40% |
60% |
80% |
100% |
100% |
100% |
Each
Sub-index is calculated on any given Trading Day t and published in USD in accordance with the following formula:
The
methodology of each Sub-index is subject to regular review, at least annually. In case a need of a change of the methodology has
been identified within such review (e.g., if the underlying market or economic reality has changed since the launch of the respective
Sub-index, i.e., if the present methodology is based on obsolete assumptions and factors and no longer reflects the reality as
accurately, reliably and appropriately as before), such change will be made in accordance with the Solactive Methodology Policy,
which is available on Solactive’s website, and published on Solactive’s website.
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 November 2024, approximately 19.8 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. As of November 2024, bitcoin accounted for approximately 60% of the
total market capitalization of all digital assets, according to CoinMarketCap.com.
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
The
Fund invests in Carbon Credit Futures that comprise the Index, specifically contracts that are linked to the value of emissions
allowances issued under the following cap-and-trade regimes: EU CEA. CCA and RGGI. The Fund does not invest in any carbon credit
futures contracts that are specifically linked to bitcoin mining or other related processes.
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 an 80% allocation to bitcoin and a 20% allocation to Carbon Credit Futures. The purpose of the Index is to
obtain exposure to bitcoin for environmentally-focused investors.
The
Carbon Credit Futures component of the Index is built with a combination of three carbon credit indices: (i) Solactive Future
Series European Carbon Credit Rolling Futures Index, which tracks Intercontinental Exchange (“ICE”) EUA (Carbon Emission
Allowances) futures; (ii) Solactive Future Series California Carbon Rolling Futures Index, which tracks ICE California Carbon
Allowance Vintage Future contracts; and (iii) Solactive Futures Series Regional Greenhouse Gas Rolling Futures Index, which tracks
ICE RGGI (CO2 allowances) futures contracts. For additional information regarding the Sub-Indexes, see “Investment Objective
and Investment Strategy—Principal Investment Strategies—the Index—Carbon Credit Futures Sub-indexes” on
page [ ].
The
Sub-indexes include only Carbon Credit Futures that mature in the upcoming December. Specifically, each Sub-index includes front-month
futures contracts that are rolled over a five-day period prior to the expiration of such contracts in December to new contracts that
expire in the December of the subsequent year. The Index does not equally weight its exposure to the Carbon Credit Futures that
comprise the Sub-indexes. Rather the Index provides exposure to the reference carbon credits proportional to the trading volume of
the back-month Carbon Credit Futures over the last 22 trading days prior to the December rebalancing. As of the date of this
prospectus, 11% of the Index is comprised of EU CEA Carbon Credit Futures, 8% of the Index is comprised of CCA Carbon Credit Futures
that reference CCA and 1% of the Index is comprised of RGGI Carbon Credit Futures.
The
Index rebalances quarterly in March, June, September and December. The December rebalance of the Index is the business day immediately
following the roll of Carbon Credit Futures for each of the Sub-indexes.
Vinter
is the index provider, benchmark administrator and calculates the Bitcoin Price. Vinter is also the central recipient of input
data and evaluates the integrity and accuracy of the input data. Vinter is an index provider for crypto assets. Vinter works with
leading issuers in Europe to create exchange-traded products. Vinter developed the first crypto indexes in the Nordics approved
by the European Securities and Markets Authority (ESMA). Vinter introduces crypto assets to the traditional financial industry
and reliable pricing and trust to the blockchain community. Vinter’s multinational team consists of individuals with diverse
backgrounds and experience in cryptocurrency research and trading, data engineering, corporate law, investment banking, and structured
products. Vinter is a registered trademark owned by Invierno AB. Invierno AB is the legal name of Vinter. The European Securities
and Markets Authority has included Invierno AB in its register of Benchmark Administrators approved to carry on the regulated
activity of administering a benchmark.
Vinter is in the process of being acquired by Kaiko. Kaiko, founded
2014, is a global crypto data and data solutions company, offering businesses institutional-grade, regulatory-compliant solutions. Kaiko,
through Kaiko Indices, a wholly owned subsidiary, is an index provider for crypto assets. Kaiko Indices is a registered Benchmark Administrator
under the EU Benchmark Regulations and is regulated by the European Securities and Markets Authority (ESMA). Kaiko crypto asset benchmarks
and indices are used by exchanges, asset managers and funds, and other market participants across the world. The Vinter acquisition entails
solely a change of ownership. The Vinter entity will continue to operate post-acquisition under the supervision of Kaiko.
Solactive
is the calculation agent of the Index and is also the index provider of each of the Sub-indexes detailed below. Solactive also
calculates the value of the Carbon Credit Futures portion of the Index and the value of the Index overall. Since its creation
in 2007, Solactive AG has become one of the key players in the indexing space. Solactive AG is a German multi-asset class index
provider focusing on tailor-made indices, developing, calculating and distributing them worldwide. Offering a fast time to market
service with great flexibility and at a reasonable cost has allowed Solactive AG to become one of the fastest growing index providers
over the past few years. Solactive AG now calculates indices for more than 500 clients in Europe, America and Asia. As of October
2024, approximately $300 billion are invested in products linked to more than 35,000 indices calculated by Solactive AG globally,
primarily in the form of 650 ETFs.
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 _____):
Aggregate Redemptions (from inception through _____):
Total Net Assets as of _____:
NAV per Share as of _____:
Worst Monthly Percentage Draw-down: [ ] to [ ] ([ ]%)
Worst Peak-to-Valley Draw-down: [ ] to [ ] ([ ]%)
Number of shareholders (as of _____):
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Rates
of Return:*
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with Year of Inception] |
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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 0.16% or $0.04 return. The numbers in the
chart below have been rounded to the nearest 0.01.
| |
Per
Share |
| |
|
| Assumed
initial selling price per Share(1) |
$25.00 |
| Management
Fee(2) |
$(0.17) |
| Estimated
Brokerage Commissions and Fees(3) |
$(0.04) |
| Other
Fund Fees and Expenses(4) |
$– |
| Interest
and Other Income(5) |
$0.17 |
| Amount
of trading income (loss) required for the redemption value at the end of one year to equal the selling price of the Share |
$(0.04) |
| Percentage
of initial selling price per Share(6) |
(0.16)% |
| (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 Sponsor
may elect to pay or waive a portion of these fees. 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 4.50%. 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 0.16% or $0.04 per share. |
Management
Fee
The
Fund pays the Sponsor a management fee (the “Management Fee”), monthly in arrears, in an amount equal to 0.68% 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) transferred to the Bitcoin Custodian and used to
acquire bitcoin; (ii) transferred to an FCM to facilitate the Fund’s investment in Carbon Credit Futures; (iii) accrued
and distributed to pay fees due to the Sponsor and Fund expenses and liabilities not assumed by the Sponsor, (iv) distributed
to Authorized Purchasers in connection with redemptions of Baskets, or (v) 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 proceeds will be allocated between the Bitcoin Custodian and the Non-Digital Custodian in
accordance with the Fund’s investment strategies. The Bitcoin Trading Counterparties 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 a price as close to the Bitcoin Price
as practical from any of the approved Bitcoin Trading Counterparties. Once agreed upon, the transaction will generally occur on
an “over-the-counter” basis. Transfers to and from the Fund of bitcoin are “on-chain” transactions represented
on the Bitcoin blockchain. Transfer fees with respect to this on-chain transfer of bitcoin are paid by the Bitcoin Custodian.
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. With respect to the Fund’s investments
in Carbon Credit Futures, The Sponsor causes the Fund to transfer the proportional amount of proceeds of the sale of Creation
Baskets to the Non-Digital Custodian or another financial institution for use in trading activities and/or investment in Carbon
Credit Futures and cash and cash equivalents. When the Fund purchases Carbon Credit Futures, the Fund is required to deposit with
the FCM on behalf of the exchange a portion of the value of the contract or other interest as security to ensure payment for the
obligation under the Carbon Credit Futures at maturity. This deposit is known as initial margin. The Sponsor invests the Fund’s
assets that remain after margin and collateral is posted in cash and cash equivalents. Subject to these margin and collateral
requirements, the Sponsor has sole authority to determine the percentage of assets that will be: (i) held as margin or collateral
with the FCM or other custodian; (ii) used for other investments; and (iii) held in bank accounts to pay current obligations and
as reserves. In general, the Fund expects that it will be required to post approximately 10% to 20% of the notional amount of
a Carbon Credit Future as initial margin when entering into such contract. Ongoing margin and collateral payments will generally
be required based on changes in the value of the Carbon Credit Futures. Cash and cash equivalents held by the Fund constitute
reserves that are available to meet ongoing margin and collateral requirements. All interest or other income is used for the Fund’s
benefit. An FCM, counterparty, government agency or commodity exchange could increase margin or collateral requirements applicable
to the Fund to hold trading positions at any time. Moreover, margin is merely a security deposit and has no bearing on the profit
or loss potential for any positions held. The Fund’s assets that are used to post the approximate 10% to 20% of notional
value for margin held by the FCM are held in segregation pursuant to the CEA and CFTC regulations. For purposes of creation and
redemption orders for Carbon Credit Futures, the settlement price on the primary exchange will be used.
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 prices as close to the Bitcoin Price as practical on 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 before the Sponsor, on behalf
of the Trust, will 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. Pursuant to this process, the
Sponsor has approved each of JSCT, LLC (which is an affiliate of Jane Street Capital, LLC an Authorized Purchaser for the Fund),
DV Chain, LLC and Gemini to act as a Bitcoin Trading Counterparty. Bitcoin Trading Counterparties may be added at any time, subject
to the discretion of the Sponsor.
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. Stated differently, the Sponsor will facilitate the liquidation
of an amount of bitcoin and Carbon Credit Futures that will, in aggregate cover the sufficient assets necessary redemption order
or invest the proceeds from a creation order in bitcoin and Carbon Credit Futures, in each instance so that the Fund will continue
to track the Index’s 80% allocation in bitcoin and 20% allocation in Carbon Credit Futures. With respect to Carbon Credit
Futures, the Sponsor will instruct the liquidation or acquisition of each component Carbon Credit Future in accordance with the
weighting of the Index (i.e., to maintain the weighting reflected in the Index of Carbon Credit Futures referencing EU
CEA, CCA and RGGI). 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 cover the expenses incurred in connection with the creation and redemption of 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.
In
connection with any issuance or redemption of a Creation Basket, the Fund deploys assets or liquidates assets, as applicable,
in proportion with the
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. 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. |
With
respect to the suspension of creation or redemption orders, such suspension may cause to price of the Shares to deviate more significantly
from the Fund’s NAV per Share than would be the case if such suspension had not occurred. The Fund will notify Shareholders
of any such suspension in a prospectus supplement and/or a current report on Form 8-K or in its annual or quarterly reports.
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 $[ ] and is payable in cash.
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 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 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
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) approve amendments to the Trust Agreement
that impair the right to surrender Redemption Baskets for redemption. 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 Sponsor shall determine the contents and manner of delivery of any notice of any Trust Agreement amendment.
Such notice may be provided on the Fund’s website, in a prospectus supplement, through a current report on Form 8-K and/or
in the Fund’s annual or quarterly reports.
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 Sponsor will sell the
Fund’s bitcoin (at prices as close as practicable to the Bitcoin Price) and Carbon Credit Futures and will distribute to
Shareholders any amounts of the cash proceeds 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. Under no circumstances
will the Fund distribute bitcoin to Shareholders.
AML/KYC
The
Trust takes measures with the objective of reducing illicit financing risks in connection with the Trust’s activities. However,
illicit financing risks are present in the digital asset markets, including markets for bitcoin. There can be no assurance that
the measures employed by the Trust will prove successful in reducing illicit financing risks, and the Trust is subject to the
complex illicit financing risks and vulnerabilities present in the digital asset markets. If such risks eventuate, the Trust,
the Sponsor or the Trustee or their affiliates could face civil or criminal liability, fines, penalties, or other punishments,
be subject to investigation, have their assets frozen, lose access to banking services or services provided by other service providers,
or suffer disruptions to their operations, any of which could negatively affect the Trust’s ability to operate or cause
losses in value of the Shares.
The
Trust, the Sponsor and its affiliates have adopted and implemented policies and procedures that are designed to comply with applicable
anti-money laundering laws and sanctions laws and regulations, including applicable know your customer (“KYC”) laws
and regulations. The Sponsor and the Trust will only interact with known third-party service providers with respect to whom the
Sponsor or its affiliates have engaged in a due diligence process to ensure a thorough KYC process, such as the Authorized Purchasers,
LPs, market makers, FCMs and Bitcoin Custodian. Each Authorized Purchaser, LP, and market maker must undergo onboarding by the
Sponsor prior to placing creation or redemption orders with respect to the Fund. As a result, the Sponsor and the Trust have instituted
procedures designed to ensure that a situation would not arise where the Trust would engage in transactions with a counterparty
whose identity the Sponsor and the Trust did not know.
Furthermore,
Authorized Purchasers, as broker-dealers, FCMs, and Bitcoin Custodian, as an entity licensed to conduct virtual currency business
activity by the New York Department of Financial Services and a limited purpose trust company subject to New York Banking Law,
respectively, are “financial institutions” subject to the U.S. Bank Secrecy Act, as amended (“BSA”), and
U.S. economic sanctions laws. The Trust will only accept creation and redemption requests from Authorized Purchasers, LPs, and
market makers who have represented to the Trust that they have implemented compliance programs that are designed to ensure compliance
with applicable sanctions and anti-money laundering laws. The Non-Digital Custodian and Bitcoin Custodian have adopted and implemented
anti-money laundering and sanctions compliance programs, which provides additional protections to ensure that the Sponsor and
the Trust do not transact with a sanctioned party.
Governing
Law; Consent to New York Jurisdiction
The
Trust Agreement and the rights of the Sponsor, Trustee, DTC (as registered owner of the Fund’s global certificate for Shares)
and Shareholders are governed by the laws of the State of Delaware, except with respect to causes of action for violations of
U.S. federal, including the Securities Act and the Exchange Act, or state securities laws. 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. The Trust Agreement does not contain an exclusive forum provision.
The
Non-Digital Custody Agreement, 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, U.S. Bank, N.A (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.
Custody
of the Fund’s Non-Bitcoin Assets
U.S.
Bank, N.A., holds the Fund’s securities, cash and/or cash equivalents pursuant to a custodial agreement in connection with
the Fund’s Carbon Credit Futures. The Non-Digital Custodian is located at 1555 North Rivercenter Drive, Suite 302, Milwaukee,
Wisconsin 53212. U.S. Bank, N.A. is a nationally chartered bank, regulated by the Office of the Comptroller of the Currency, Department
of the Treasury, and is subject to regulation by the Board of Governors of the Federal Reserve System. The principal address for
Global Fund Services is 615 East Michigan Street, Milwaukee, WI, 53202. 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.
For additional information regarding the Non-Digital Custody Agreement, see “The Fund’s Service Providers—The
Custodians—Non-Digital Custodian” below.
Custody
of the Fund’s Bitcoin
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 custodial services 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 New York law. For additional information regarding the Bitcoin Custody Agreement, see “The Fund’s Service
Providers—The Custodian—Bitcoin Custodian” below.
The
Transfer Agent, in coordination with the Bitcoin Custodian and Non-Digital Custodian, will facilitate the settlement of Shares
in response to the placement of creation orders and redemption orders from Authorized Purchasers. 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. The Sponsor may, in its sole discretion, add or terminate
other bitcoin custodians. The Sponsor may, in its sole discretion, change the custodian for the Fund’s bitcoin holdings,
but it will have no obligation to do so or to seek any particular terms for the Fund from other such custodians. To the extent
that the Sponsor adds or terminates other bitcoin custodians, or changes the custodian for the Fund bitcoin holdings, notification
will be made to Shareholders via a prospectus supplement and/or a current report filed with the SEC.
The
Fund’s Bitcoin Custodian will keep custody of all of the Fund’s bitcoin in a custodial account maintained by the Bitcoin
Custodian (the “Bitcoin Account”) relating to its Bitcoin Account and Clearing Account. Bitcoin private keys are stored
in two different forms: “hot wallet” storage, whereby the private keys are stored on secure, internet-connected devices,
and “cold” storage, where digital currency private keys are stored completely offline. The Custody Agreement requires
the Bitcoin Custodian to hold the Fund’s bitcoin in its Bitcoin Account in cold storage, unless required to facilitate withdrawals
as a temporary measure. Bitcoin temporarily held in the Clearing Account in connection with creations and redemptions or withdrawals
of bitcoin to pay the Management Fee or extraordinary expenses may be held in omnibus hot storage wallets.
As
a fiduciary under Section 100 of the New York Banking Law, the Bitcoin Custodian is held to specific capital reserve requirements
and banking compliance standards. The Bitcoin Custodian is also subject to the laws, regulations and rules of applicable governmental
or regulatory authorities, including: money service business regulations under FinCEN; U.S. state money transmission laws; laws,
regulations, and rules of relevant tax authorities; applicable regulations and guidance set forth by FinCEN; the Bank Secrecy
Act of 1970; the USA PATRIOT Act of 2001; other anti-money laundering regulations as mandated by U.S. federal law and any other
rules and regulations regarding anti-money laundering/counter-terrorist financing; issuances from the Office of Foreign Assets
Control; the New York Banking Law; regulations promulgated by the New York State Department of Financial Services from time to
time; the National Futures Association; the Financial Industry Regulatory Authority; and the Commodity Exchange Act.
The
Bitcoin Custodian provides custody, clearing/settlement, and other capital markets services specifically designed for digital
asset exchange-traded funds and other fund vehicles. The Bitcoin Custodian has been providing services as a limited purpose trust
company licensed by the New York State Department of Financial Services (NYSDFS) since 2015. The Bitcoin Custodian is a fiduciary
under Section 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Advisers
Act, and it was the world’s first digital asset platform to achieve a SOC 1 Type II and SOC 2 Type II certification for
custody. Gemini Custody® is also regularly audited and subject to stringent capital reserve requirements. The Bitcoin Custodian
has represented to the Sponsor that it also maintains insurance coverage by a reputable insurance company with respect to digital
assets custodied with Gemini, in accordance with its internal standards for maintaining such insurance and subject to change at
Gemini’s discretion. The Fund is not a named insured on such insurance policies and such insurance is not specific to the
Fund, but the Bitcoin Custodian has represented to the Sponsor that such insurance covers events that result in a loss of digital
assets belonging to customers, including the Fund.
The
Bitcoin Custodian will use segregated cold storage bitcoin addresses for the Fund’s Bitcoin Account, which is 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 loan, hypothecate, pledge or otherwise encumber the Fund’s bitcoin,
as applicable, without the Fund’s instruction, nor will the Sponsor or any other entity or service provider. The Fund will
not lease or loan bitcoin held in the Fund’s account with the Bitcoin Custodian and will not give instructions to that effect.
Bitcoin
Storage Structure
Bitcoin
private keys are stored in two different forms: “hot wallet” storage, whereby the private keys are connected to the
internet, and “cold” storage, where digital currency private keys are stored completely offline. The Fund’s
bitcoin will be stored by the Bitcoin Custodian offline in cold storage. When under the purview of the Bitcoin Custodian, bitcoin
will only enter “hot” storage in the case of creations and redemptions or withdrawals to pay the Sponsor Fee or extraordinary
expenses, meaning that the bitcoin will only be in “hot” storage for a temporary period. The Bitcoin Custodian will
store private keys in geographically diverse regions across the continental United States.
The
Bitcoin Custodian has adopted the following security policies and practices with respect to digital assets held in cold storage:
HSMs are used to generate, store and manage cold storage private keys; multi-signature technology is used to provide both security
against attacks and tolerance for losing access to a key or facility, eliminating single points of failure; all HSMs are stored
offline in air-gapped environments within a diverse network of guarded, monitored and access-controlled facilities that are geographically
distributed; multiple levels of physical security and monitoring controls are implemented to safeguard HSMs within storage facilities;
and all fund transfers require the coordinated actions of multiple employees.
The
Bitcoin Custodian has adopted the following security policies and practices with respect to digital assets held in its hot wallet:
HSMs are used to store and manage hot wallet private keys; operational redundancy is achieved through geographic disbursement
of failover storage facilities and hardware, thus protecting against service disruptions and single points of failure; all hot
wallet HSMs are stored within secured facilities that are access-controlled, guarded, and monitored; tiered access-controls are
applied to the Bitcoin Custodian’s production environment to restrict access to employees based on role, following the principle
of least-privilege; administrative access to its production environment requires multi-factor authentication; and it offers additional
account level protections such as crypto address whitelisting, which allows customers to restrict withdrawals to addresses only
included in the customer’s whitelist.
The
Fund will use a clearing account for the Fund (the “Clearing Account”) in connection with clearing and settlement
services for bitcoin purchase and sale transactions (“Clearing Services”). While the Bitcoin Custodian maintains records
of the Fund’s bitcoin balance in its Clearing Account, the actual bitcoin relating to the Fund’s Clearing Account
is held in omnibus wallets by the Bitcoin Custodian, meaning that bitcoin owned by multiple customers is held in the same wallet
and at the same address on the Bitcoin Blockchain. The Fund’s Clearing Account balance therefore represents an omnibus claim
on the Bitcoin Custodian’s bitcoins held in such wallets, and the Fund does not have an identifiable claim to specific bitcoins.
The Bitcoin Custodian holds the bitcoin across a combination of omnibus hot wallets and cold wallets. The Sponsor has no control
over, and the Bitcoin Custodian does not disclose to the Sponsor, the amount of bitcoin that the Bitcoin Custodian holds in connection
with the Fund’s Clearing Account in omnibus hot wallets, as compared to omnibus cold wallets. The Bitcoin Custodian could
hold substantially all bitcoin connected to the Fund’s Clearing Account in omnibus hot wallets. In addition to the Bitcoin
Account and the Clearing Account, the Fund will have access to an omnibus custodial account held at depository institutions or
money market funds in the Bitcoin Custodian’s name for the benefit of its customers at which a cash balance may be maintained
(“Fiat Account”). The Bitcoin Custodian’s services in respect of the Bitcoin Account (i) allow bitcoin to be
deposited from a public blockchain address to the Fund’s Bitcoin Account and (ii) allow bitcoin to be withdrawn from the
Bitcoin Account to a public blockchain address as instructed by the Fund. The Custody Agreement requires the Bitcoin Custodian
to hold the Fund’s bitcoin in cold storage, unless required to facilitate withdrawals as a temporary measure.
Other
than in connection with creations and redemptions and withdrawals of bitcoin to pay the Sponsor Fee and Additional Fund Expenses,
where the associated bitcoin may temporarily be held in omnibus hot storage in the Clearing Account, the Bitcoin Custodian will
use segregated cold storage bitcoin addresses for the Fund. The addresses on the Bitcoin Blockchain at which the Fund’s
bitcoin in the Bitcoin Account are held by the Bitcoin Custodian are separate from the bitcoin addresses that the Bitcoin Custodian
uses for its other customers and are directly verifiable via the Bitcoin Blockchain. The Bitcoin Custodian will safeguard the
private keys to the bitcoin associated with the Fund’s Bitcoin Account. 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 Bitcoin Account with the Bitcoin Custodian, or loan, hypothecate, pledge or otherwise
encumber the Fund’s bitcoin, without the Fund’s instruction, nor will the Sponsor or any other entity or service provider.
The Fund will not lease or loan bitcoin held in the Fund’s Bitcoin Account with the Bitcoin Custodian and will not give
instructions to that effect.
The
Custody Agreement provides that bitcoin is deemed delivered to the address associated with the Fund’s Bitcoin Account only
after the required number of confirmations of the transaction on the Bitcoin Blockchain, and that Gemini has no obligations for
bitcoin that is not delivered in that manner. The Custody Agreement provides that once the Fund submits a request for a withdrawal
transaction, the bitcoin subject to the withdrawal request shall be delivered by the Bitcoin Custodian to the designated address
on the Bitcoin Blockchain specified in the Fund’s withdrawal transaction within one business day of 4:00 p.m. Eastern time
of the business day on which the Fund submits the withdrawal request. If a withdrawal request is made by the Fund (i) by 4:00
p.m. Eastern time of the business day on which the Fund submits the withdrawal request, (ii) in connection with a redemption of
shares of the Fund by an Authorized Participant, and (iii) the delivery of bitcoin for such withdrawal request is to the account
at the Bitcoin Custodian of an Authorized Participant, then the bitcoin subject to such withdrawal request shall be delivered
to the destination blockchain address specified therein, by the next business day from the business day when such withdrawal request
was submitted. The Custody Agreement provides that withdrawals may be delayed in connection with scheduled maintenance (“Downtime”)
or the congestion or disruption of a digital asset network, including the Bitcoin Blockchain.
In
respect of the Fiat Account, the Bitcoin Custodian holds the Fund’s cash held in its account at the Bitcoin Custodian in
one or more Customer Omnibus Accounts. “Customer Omnibus Account” means, with respect to fiat currency held for customers
of the Bitcoin Custodian in fiat accounts (including the Fund’s cash balance in its Fiat Account), omnibus bank accounts
(each an “Omnibus Account”) at depository institutions (each, a “Bank”); money market accounts (each,
a “Money Market Account”) at a Bank or financial institution; and/or payment accounts (each, a “Payment
Account”) at a financial institution. Each Omnibus Account is: (i) in the Bitcoin Custodian’s name, and under its
control; (ii) separate from the Bitcoin Custodian’s business, operating, and reserve bank accounts; (iii) established specifically
for the benefit of the Bitcoin Custodian’s customers; and (iv) represents a banking relationship, not a custodial relationship,
with each Bank. Omnibus Accounts do not create or represent any relationship between the Fund and any of the Bitcoin Custodian’s
Banks. Each Money Market Account is held at a Bank or financial institution: (i) in the Bitcoin Custodian’s name, and under
its control; (ii) separate from the Bitcoin Custodian’s business, operating, and reserve money market accounts; (iii) established
specifically for the benefit of the Bitcoin Custodian’s customers; (iv) managed by a registered financial advisor, (v) custodied
by a qualified custodian; and (vi) the monies within which are used to purchase money market funds invested in securities issued
or guaranteed by the United States or certain U.S. government agencies or instrumentalities. Money Market Accounts do not create
or represent any relationship between the Fund and any of the related registered financial advisors and/or qualified custodians.
Each Payment Account is held at a financial institution: (i) in the Bitcoin Custodian’s name, and under its control; (ii)
separate from the Bitcoin Custodian’s business, operating, and reserve bank accounts; and (iii) established specifically
for processing the fiat funds transfers of the Bitcoin Custodian’s customers. Payment Accounts do not create or represent
any relationship between the Fund and any of the related financial institutions. The Fund’s fiat currency deposits are:
(i) held across the Bitcoin Custodian’s Customer Omnibus Accounts in the exact proportion that all Bitcoin Custodian customer
fiat currency deposits are held across its Customer Omnibus Accounts; (ii) not treated as the Bitcoin Custodian’s general
assets; (iii) fully owned by the Fund; and (iv) recorded and maintained in good faith on the Bitcoin Custodian’s books and
records and reflected in a sub-account (i.e., the Fiat Account of the Fund’s Gemini Account) so that the Fund’s interests
in the Bitcoin Custodian’s Customer Omnibus Accounts are readily ascertainable. The Bitcoin Custodian’s records permit
the determination of the balance of U.S. dollars for a particular customer as a percentage of total commingled U.S. dollars held
for the benefit of all of the Bitcoin Custodian’s customers in all Customer Omnibus Accounts in a manner consistent with
12 C.F.R. § 330.5(a)(2). The Fund is not entitled to receive any interest that may be generated with respect to the cash
held in its Fiat Account. U.S. dollar deposits in the Fund’s Fiat Account held in one or more Omnibus Accounts at one or
more Banks located in the United States are held with the intention that they be eligible for Federal Deposit Insurance Corporation
(“FDIC”) “pass-through” deposit insurance, subject to the Standard Maximum Deposit Insurance Amount per
FDIC regulations (currently $250,000 per eligible customer of the Bitcoin Custodian) and other applicable limitations. U.S dollar
deposits held at banks or financial institutions located outside of the United States, may not be subject to or eligible for FDIC
deposit insurance. The portion of the Fund’s cash holdings attributable to the Fund’s Fiat Account which is held at
a Money Market Fund is not eligible for deposit insurance whether on a pass-through or any other basis. The Custody Agreement
provides that wire deposit and withdrawal transfer times in respect of the Fiat Account are subject to bank holidays, the internal
processes and jurisdiction of the Fund’s bank, and the internal processes of the Bitcoin Custodian’s banks and financial
institutions. In certain situations, wire deposit or withdrawal transfer times may be delayed in connection with Downtime or disruptions
to the Bitcoin Custodian’s banks and/or affiliates or service providers. ACH deposit and withdrawal transfer times are subject
to bank holidays, the internal processes and jurisdiction of the Fund’s bank, and the internal processes of the Fund’s
banks. The Custody Agreement provides that in certain situations, ACH withdrawal transfer times may be delayed in connection with
Downtime or disruptions to the Bitcoin Custodian’s banks and/or affiliates or service providers.
Gemini
BSA/AML Program
The
Bitcoin Custodian has adopted the Gemini BSA/AML Program for its digital asset trading platform and custody service in an effort
to maintain the highest possible compliance with applicable laws and regulations relating to anti-money laundering in the U.S.
and other countries where it conducts business. This program includes robust internal policies, procedures and controls that combat
any attempted use of Gemini for illegal or illicit purposes, including a customer identification program, annual training of all
employees and officers in anti-money laundering regulation, filing of Suspicious Activity Reports and Currency Transaction Reports
with the U.S. Financial Crimes Enforcement Network and annual internal and independent audits of the Gemini BSA/AML Program.
Website
Security
The
Bitcoin Custodian has implemented certain security policies and practices to enhance security on its website, including through
the use of two-factor authentication for certain user actions, such as withdrawals; a requirement for strong passwords from its
users, which are cryptographically hashed using modern standards; encryption of sensitive user information, both in transit and
at rest; the application of rate-limiting procedures to certain account operations such as login attempts to thwart brute force
attacks; the transmission of website data over encrypted transport layer security connections; the leveraging of content-security
policy and HTTP strict transport security features in modern browsers; partnerships with enterprise vendors to mitigate-potential
distributed denial-of-service attacks; and the use of separate access controls on internal-only sections of the Bitcoin Custodian’s
website.
Internal
Control
In
addition to the security policies and procedures discussed above, the Bitcoin Custodian has also instituted the following internal
controls: multiple signatories are required to transfer funds out of cold storage; the Bitcoin Custodian’s Chief Executive
Officer and President are unable to individually or jointly transfer funds out of cold storage; all private keys are stored offsite
in secure facilities; all employees undergo criminal and credit background checks, and are subject to ongoing background checks
throughout their employment; and all remote-access by employees uses public-key authentication (e.g. no passwords, one-time passwords
or other phishable credentials are used).
Insurance
The
Bitcoin Custodian, as custodian of the Fund’s bitcoin, is responsible for securing the Fund’s bitcoin. The Bitcoin
Custodian currently maintains $[__] million in specie coverage for digital assets held in its cold storage system, which the Bitcoin
Custodian has represented to the Fund applies to all customer assets held at the Bitcoin Custodian, including the Fund’s
assets. Such insurance is shared with other customers and is not specific to the Fund. The Fund is not a named beneficiary under
the Bitcoin Custodian’s insurance policies, though the Bitcoin Custodian has represented to the Sponsor that the insurance
covers customer losses, including losses suffered by the Fund, arising from specified events, including fraud, theft, and cyber-security
breaches. The amounts and continuing availability of this coverage are subject to change at the Bitcoin Custodian’s sole
discretion. The Bitcoin Custodian also maintains separate commercial crime insurance coverage for digital assets custodied in
its “hot wallet”. To date, the Bitcoin Custodian has never experienced a loss due to unauthorized access from its
hot wallet or the cold storage vaults.
Each
Bitcoin Trading Counterparty is required to maintain a Bitcoin Trading Counterparty bitcoin account at the Fund’s Bitcoin
Custodian.
The
Fund’s Transfer Agent will facilitate the settlement of Shares in response to the placement of creation orders and redemption
orders from Authorized Participants. The Fund generally does not intend to hold cash or cash equivalents except in connection
with cash creation and redemption orders. However, there may be situations where the Fund will unexpectedly hold cash on a temporary
basis.
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. Tidal services over 175 ETFs with over $26 billion in assets across a diverse range of investment strategies. Our leadership
team brings a wealth of expertise, with over 300 years of combined ETF industry experience. We have more than 75 specialized professionals
dedicated to helping our clients successfully launch, manage, and grow ETFs. Our services include trust management, trading, capital
markets, product development, fund administration, accounting, legal, compliance, and marketing. Tidal has been a leader in the
Digital Assets space since 2015, beginning as early investors in GBTC, one of the first products to provide Bitcoin exposure.
In 2018, Tidal became the sub-advisor for BLOK, an innovative, actively managed ETF focused on blockchain technology, which broke
new ground by being the first ETF to allocate to spot Bitcoin ETFs. This commitment to innovation continued in 2024, when Tidal
partnered with Hashdex to successfully convert their Bitcoin futures ETF into a spot Bitcoin ETF, further advancing accessibility
to digital asset investments.
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 0.68% 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 Executive Officers the Sponsor, all of whom are
members of the Sponsor:
Mr.
Guillermo Trias, born in 1976, has served as the Co-Founder and CEO of Tidal Investments LLC since November 1, 2015. In his
role, he oversees the overall strategic direction, management, and operational aspects of the firm’s ETF investment platforms.
Mr. Trias was approved as a Principal of the Sponsor by the NFA on February 7, 2022. He holds a Business Administration degree
from CUNEF and an MBA from the Kellogg School of Management at Northwestern University.
Mr.
Michael Venuto, born in 1977, has been the Chief Investment Officer at Tidal Investments LLC since March 12, 2012. His responsibilities
at Tidal include the strategic planning and execution of ETF-based investment strategies, focusing on innovation and market responsiveness.
Mr. Venuto was approved as a Principal of the Sponsor by the NFA on February 25, 2022.
Mr.
Dan Carlson, born in 1955, has been the CFO at Tidal Investments LLC since March 12, 2012, and served as CCO from March 12,
2012 to March 31, 2023. His responsibilities involve managing the company’s financial operations and overseeing financial
planning. He holds a BS degree in Accounting from the University of Illinois, Champaign-Urbana. Mr. Carlson was approved as a
Principal of the Sponsor by the NFA on February 7, 2022.
Mr.
Eric Falkeis, born in 1973, has been the Chief Growth Officer at Tidal Investments LLC since November 1, 2018, and co-founded
Tidal ETF Services. His role at Tidal involves leading business development and growth strategy initiatives. Mr. Falkeis is a
CPA and holds a BS degree in Accounting from Marquette University. As of the date of this prospectus, his application to be listed
as a Principal of the Sponsor is currently pending with the NFA.
Mr.
Gavin Filmore, born in 1984, joined Tidal Investments LLC as the Head of Product Development in August 2021 and was promoted
to COO in July 2022. Before joining Tidal, he worked at Barclays Investment Bank, a leading global investment bank offering services
in investment management, wealth management, and corporate banking, from August 2017 to September 2021. His focus at Barclays
was on Exchange Traded Products. Mr. Filmore holds a BS in Finance from Northeastern University. He was approved as a Principal
of Tidal Investments LLC and registered as an Associated Person of the Sponsor by the NFA on March 8, 2022.
Mr.
William Woolverton, born in 1951, has been the Chief Compliance Officer of Tidal Investments LLC, Tidal ETF Trust, and Tidal
Trust II since November 10, 2022. Prior to joining Tidal, he was a Senior Principal Consultant at ACA Group, a firm specializing
in governance, risk, and compliance services for financial institutions, from March 2020 to October 2022. Before ACA Group, Mr.
Woolverton served as Managing Director - US at Waystone, a company offering comprehensive fund governance, risk, compliance, and
administration services to the asset management industry, from April 2016 to December 2019. Mr. Woolverton received his M.A. from
King’s College, Cambridge University, and a law degree from Columbia University School of Law. He was approved as a Principal
of the Sponsor by the NFA on April 5, 2023.
The
following are individual Principals, as that term is defined in CFTC Rule 3.1, of Tidal Investments LLC: Messrs. Michael Venuto,
Guillermo Trias and Daniel Carlson. Their status as principals is primarily due to their ownership interests in the Sponsor. Mr.
Trias, in particular, holds his interest through GT Capital Advisors LLC, a company he owns and manages, which has over 10% ownership
stake in the Sponsor, thereby establishing GT Capital Advisors LLC as a principal of the sponsor under CFTC regulations. Additionally,
FTV Toroso Inc. is identified as a principal of Sponsor under CFTC Rules due to its ownership interest exceeding 10% in the Sponsor.
[On March 11, 2024, Mr. Eric Falkeis submitted an application to be listed as a Principal of the Sponsor. As of the date of this
prospectus, Mr. Falkeis application is pending with the NFA.]
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 Fund Administration Servicing 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. In turn, the Administrator has engaged U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund
Services (“Global Fund Services”) to act as sub-administrator. The Administrator is a wholly-owned subsidiary of Sponsor.
The Administrator also assists the Fund and the Sponsor with certain functions and duties relating to marketing, which include
the following: marketing and sales strategy, and marketing related services.
Fund
Administration Servicing Agreement. Under the Fund Administration Servicing Agreement, the Administrator assists with overall
operation of the funds, acts as a liaison among service providers, assists with regulatory compliance, and preparation of certain
regulatory and financial reports. Under the Fund Administration Servicing Agreement, the Trust shall indemnify and hold harmless
the Administrator from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including
reasonable attorneys’ fees) the Administrator may sustain or incur or that may be asserted against Administrator by any
person arising out of any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with
the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to Administrator by any duly authorized
officer of the Trust or the Sponsor, except for any and all claims, demands, losses, expenses, and liabilities arising out of
or relating to Administrator’s refusal or failure to comply with the terms of this Fund Administration Servicing Agreement
or from its bad faith, negligence or willful misconduct in the performance of its duties under this Fund Administration Servicing
Agreement. The Fund Administration Servicing Agreement will continue in effect for a period of three years and may be terminated
by any party upon giving 90 days prior written notice to the other parties or such shorter period as is mutually agreed upon by
the parties. The governing law for the agreement is the State of Wisconsin.
The
Transfer Agent, Sub-Administrator and Fund Accountant
U.S.
Bank Global Fund Services (“Global Fund Services”), an entity affiliated with U.S. Bank, N.A., is the registrar and
transfer agent for the Fund’s Shares. In addition, Global Fund Services also serves as sub-administrator for the Fund, performing
certain sub-administrative, and accounting services, and support in preparing certain SEC and CFTC reports on behalf of the Fund.
The principal address for Global Fund Services is 615 East Michigan Street, Milwaukee, WI, 53202. 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.
Sub-Administration
Agreement. The Fund Sub-Administrator is U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services
(Global Fund Services). In the Fund Administration Servicing Agreement with the Trust and the Sponsor, Global Fund Services has
been appointed to provide a range of administrative services to the Trust. These services encompass general fund management, financial
reporting, tax reporting, and optional additional tax services, as detailed in the Agreement. The agreement specifies an initial
term of three years, with automatic renewal for successive one-year periods unless a party provides 90 days’ prior written
notice indicating non-renewal. Termination can occur under several conditions, including material breach, compliance with applicable
laws, or operational changes that affect Global Fund Services or the Trust. Additionally, the Agreement may be amended only through
a written agreement executed by both parties. The agreement limits the Global Fund Services’ liability to direct damages
arising from Global Fund Services’ refusal or failure to comply with the terms of the agreement or from its bad faith, negligence
or willful misconduct in the performance of its duties under the agreement. The Trust is required to indemnify Global Fund Services
against losses or liabilities incurred in performing its duties, except in cases of failure to meet the standard of care or due
to the Fund Administrator’s own misconduct. Conversely, Global Fund Services is obligated to indemnify the Trust against
any liabilities arising from Global Fund Services’ refusal or failure to comply with the terms of the Agreement or from
its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. The agreement is governed
by the laws of the State of Wisconsin. Both parties agree to maintain confidentiality regarding proprietary information, with
allowances for disclosure as required by law or upon mutual agreement.
Transfer
Agent Servicing Agreement. The Transfer Agent Servicing Agreement is between Global Fund Services, a registered transfer agent
under the Exchange Act, the Trust and the Sponsor. Under this agreement Global Fund Services is appointed as the transfer agent
for the Trust, providing services related to the creation and redemption of shares, dividend disbursing, and maintaining shareholder
records. Global Fund Services is responsible for facilitating purchases and redemptions of Creation Units, handling transactions
with Authorized Participants, managing dividend payments for the Trust’s shares. Global Fund Services also records issuance
of shares and maintains a record of outstanding shares for each fund in the Trust. Global Fund Services is obligated to exercise
reasonable care. Its liability is limited to direct damages arising from Global Fund Services’ refusal or failure to comply
with the terms of the agreement or from its bad faith, negligence or willful misconduct in the performance of its duties under
this agreement. The Trust is obligated to indemnify Global Fund Services against claims not arising from the agent’s non-compliance
or misconduct. Global Fund Services is required to implement its designed to promote the detection and reporting of potential
money laundering activity and identity theft by monitoring certain aspects of shareholder activity as well as written procedures
for verifying a customer’s identity. The Transfer Agent Agreement has an initial three-year term, automatically renewing
for one-year periods unless terminated by a party upon 90 days’ written notice. Early termination requires the Trust to
pay remaining fees and costs related to the transition to a new service provider. This agreement includes clauses on confidentiality,
proprietary information, and record-keeping responsibilities, ensuring both parties maintain confidentiality of sensitive information
and is governed by the laws of the State of Wisconsin.
Fund
Accounting Agreement. The Fund Accounting Servicing Agreement is between Global Fund Services, the Trust, and the Sponsor.
Under this Agreement, Global Fund Services is appointed as the fund accountant for the Trust, responsible for various accounting
services such as portfolio accounting, expense accrual and payment, trust valuation and financial reporting, tax accounting, and
compliance control services. The Agreement is set for an initial term of three years, with automatic renewal for successive one-year
terms unless terminated earlier. Termination can occur under specific conditions, including material breach or changes in laws
affecting the Agreement. The Trust and Sponsor can also terminate the agreement upon 90 days’ notice, and Global Fund Services
may do the same under certain circumstances, such as the existence of certain legal compliance issues or reputational harm. Global
Fund Services is obligated to exercise reasonable care in its duties. Global Fund Services’ liability under the agreement
limited to losses arising from Global Fund Services’ refusal or failure to comply with the terms of the agreement or from
its bad faith, negligence or willful misconduct in the performance of its duties under this agreement. The Trust is obligated
to indemnify Global Fund Services against losses not arising from such failures or misconduct. Conversely, Global Fund Services
is obligated to indemnify the Trust for losses resulting from its non-compliance or misconduct. The agreement includes clauses
on confidentiality, proprietary information, and record-keeping responsibilities, ensuring both parties maintain confidentiality
of sensitive information. The agreement has an initial three-year term, automatically renewing for one-year periods unless terminated
by a party upon 90 days’ written notice and is governed by the laws of the State of Wisconsin.
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, U.S. Bank, N.A., 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
Gemini
Trust Company, LLC serves 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 315 Park Ave South, Floor 16, New York, NY 10010. Gemini s a fiduciary
under § 100 of the New York Banking Law. The Bitcoin Custodian is authorized to serve as the Fund’s custodian under
the Trust Agreement and pursuant to the terms and provisions of the Custody Agreement.
In
designating a custodian as a bitcoin custodian for the Fund, the Sponsor considers whether the custodian provides protection against
theft and loss and ensures that the transactions and trades are secure. The Sponsor may consider whether a custodian:
1. Provides
custody accounts whose holders are the legal beneficiaries of the assets held in the account. In case of bankruptcy or insolvency
of a Bitcoin Custodian, creditors or the estate should have no rights to the clients’ assets.
2. Offers
segregated accounts and stores the Fund’s bitcoin in separated individual accounts and not in omnibus accounts. That means
that The Fund’s bitcoin shall be held in segregated wallets and therefore are not commingled with the Bitcoin Custodian’s
or other customer assets.
3. Generates
account-segregated private keys for digital assets using high entropy random number generation methods and employing advanced
security practices.
4. Utilizes
technology for storing private keys in offline digital vaults and applies secure processes, such as private key segmentation,
multi-signature authorization, and geographic distribution of stored assets, to limit access to private keys. The Bitcoin Custodian
should use security technology for storing private keys aiming to avoid theft or misappropriation of assets due to online attacks,
collusion of agents managing the storage services, or any other threat.
5. Has
a comprehensive risk management policy and formalized framework of managing operational and custody risks, including a disaster
recovery program that ensures continuity of operations in the event of a system failure. The Bitcoin Custodian shall have a business
continuity plan to help ensure continued access to the Fund’s assets.
6. Has
an insurance policy that covers, at least partially, risks such as the loss of client assets held in cold storage, including from
employee collusion or fraud, physical loss including theft, damage of key material, security breach or hack, and fraudulent transfer.
7. Complies
with higher standards of government oversight, external audits, and security, and as such, Bitcoin Custodian is able to offer
better legal guarantees that safekeep asset ownership. The Bitcoin Custodian may be licensed or registered as a custodian by a
reputable and independent governing body (e.g., the New York State Department of Financial Services, or other state, national
or international regulators), as can be ascertained by certain public data sources.
8. Provides
third-party audit reports at least annually on operational and security processes. This audit may be completed by having a Systems
and Organizational Control certification (“SOC”) issued. Auditors provide reasonable assurance that the Bitcoin Custodian
operational processes and private key management controls are in accordance with the expected standards.
A
custodian may lose its eligibility as a Bitcoin Custodian if it fails to comply with the above requirements, but the Sponsor has
no obligation whatsoever to change the Bitcoin Custodian for the Fund’s bitcoin holdings. The Bitcoin Custodian may also
employ advanced blockchain monitoring tools and services to ensure the security and compliance of incoming transactions, including:
1. Transaction
Validation: When a transaction is initiated, these monitoring tools immediately validate it against predefined criteria, including
sender addresses, transaction amounts, and transaction details, to ensure they comply with the custodian’s policies and
regulatory requirements.
2. Real-time
Alerts: These monitoring tools offer real-time alerting capabilities, using advanced algorithms to identify suspicious or potentially
fraudulent transactions. They detect patterns that may indicate money laundering, fraud, or other illicit activities.
3. AML/KYC
Compliance: To comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, custodians integrate these solutions
to verify sender and receiver identities, ensuring transactions are conducted by legitimate parties and meeting regulatory requirements.
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.
Bitcoin
Custody Agreement. The Trust, on behalf of the Fund, has entered into a custodial services agreement with the Bitcoin Custodian.
The
Bitcoin Custodian agrees to take reasonable care and use commercially reasonable efforts in executing its responsibilities to
the Trust pursuant to the Bitcoin Custody Agreement, which includes exercising the degree of care, diligence and skill that a
prudent and competent professional provider of services similar to the services contemplated by the Bitcoin Custody Agreement
would exercise in the circumstances, or such higher care where required by law or the Bitcoin Custody Agreement (collectively,
the “Standard of Care”). The Bitcoin Custodian cannot be held responsible for any failure or delay to act by the Bitcoin
Custodian, its affiliates or service providers, or its banks that is within the time limits permitted by the Bitcoin Custody Agreement,
or that is caused by the Fund’s negligence or is required to comply with applicable laws and regulations. The Bitcoin Custodian
cannot be held responsible for any Downtime or System Failure (defined below), which prevents the Bitcoin Custodian from fulfilling
its obligations under the Bitcoin Custody Agreement, provided that Bitcoin Custodian took reasonable care and used commercially
reasonable efforts to prevent or limit such System Failures or Downtime and otherwise complied with this Agreement. The Bitcoin
Custody Agreement provides that a “System Failure” shall mean a failure of any computer hardware, software, computer
systems, or telecommunications lines or devices used by Bitcoin Custodian, or interruption, loss, or malfunction of utility, data
center, Internet or network provider services used by Bitcoin Custodian; provided, however, that a cybersecurity attack, data
breach, hack, or other intrusion, or unauthorized disclosure by a third party, Bitcoin Custodian, a Bitcoin Custodian affiliate
or service provider, or an agent or subcontractor of Bitcoin Custodian, shall not be deemed a System Failure, to the extent such
events or any losses arising therefrom are due to Bitcoin Custodian’s failure to comply with its obligations under the Bitcoin
Custody Agreement. The Bitcoin Custodian cannot be held responsible for any circumstances beyond the Bitcoin Custodian’s
reasonable control, provided Bitcoin Custodian acted in accordance with the Standard of Care. Notwithstanding any other provision
in the Bitcoin Custody Agreement, for the Fund’s bitcoin held in the Bitcoin Account, the Bitcoin Custodian represents,
warrants, and covenants that it will maintain the private key or keys in a form accessible to the Bitcoin Custodian and will take
reasonable care and use commercially reasonable efforts to (i) protect and keep the private key or keys secure and (ii) not disclose
them or allow access to them by any other person. The Bitcoin Custodian shall take reasonable care and use commercially reasonable
efforts to ensure that the Trust shall be able to access the Bitcoin Account via the Bitcoin Custodian’s online interface
97% of the time excluding Downtime and System Failures. The Bitcoin Custodian shall not, without the prior written consent of
the Trust, deposit or hold the Fund’s bitcoin with any third-party depositary, custodian, clearance system, wallet, or sub-custodian.
Subject to the foregoing, the Bitcoin Custodian is permitted to perform its obligations under the Bitcoin Custody Agreement using
subcontractors or agents, provided that, in relation to each such subcontractor or agent used by the Bitcoin Custodian, the Bitcoin
Custodian shall: (i) comply with the Standard of Care in the selection, appointment and use of each such subcontractor or agent;
(ii) monitor such subcontractor’s or agent’s performance; and (iii) remain solely liable to Trust for the performance
of the Bitcoin Custodian’s obligations under the Bitcoin Custody Agreement, notwithstanding any use of subcontractors or
agents.
The
Bitcoin Custody Agreement provides that no more than once per calendar year, the Trust shall be entitled to request that the Bitcoin
Custodian produce its Services Organization Controls 2 Type I report (a “SOC 2-I Report”) and a new Services Organization
Controls 2 Type II report (a “SOC 2-II Report” and, together with a SOC 2-I Report, “SOC Reports”), or
certify that there have been no material changes which would impact the previous SOC Reports provided to the Trust, and promptly
deliver to the Trust a copy of each SOC Report within 45 days of the Trust’s request. No more than once per calendar year,
the Trust shall be entitled to request that the Bitcoin Custodian produce a copy of the Bitcoin Custodian’s audited annual
financial statements for each financial year ending on or after December 31, 2021, and the Bitcoin Custodian shall promptly deliver
such financial statements to the Trust.
Subject
to the “Force Majeure” provision (defined below) and as limited by the limitations of liability in the Bitcoin Custody
Agreement, the Bitcoin Custodian shall be liable to the Trust for the Loss (defined below) of any of the Fund’s bitcoin
or fiat currency to the extent that such Loss was caused by the negligence, fraud, willful or reckless misconduct of the Bitcoin
Custodian or breach by the Bitcoin Custodian of its Standard of Care. The Bitcoin Custody Agreement provides that “Loss”
means if, at any time the Fund’s bitcoin Account or Fiat Account, as applicable, does not hold the bitcoin or fiat currency
that had been (1) received by Bitcoin Custodian in connection with the Fund’s bitcoin Account or Fiat Account pursuant to
the Bitcoin Custody Agreement, or (2) duly sent to the Bitcoin Custodian by the Trust or Authorized Participants in connection
with the Fund’s bitcoin Account pursuant to the Bitcoin Custody Agreement but not received because of a failure caused by
the Bitcoin Custodian. The Bitcoin Custody Agreement provides that “Loss” shall include situations where the Bitcoin
Custodian fails to execute a valid withdrawal request, bitcoin are withdrawn from the Fund’s bitcoin Account other than
pursuant to a withdrawal request, or the Trust is not able to timely withdraw bitcoin from the Bitcoin Account pursuant to a withdrawal
request, in each case due to a failure caused by the Bitcoin Custodian; provided, however, that the Bitcoin Custodian’s
failure to permit timely withdrawals because it has determined that it cannot do so due to the requirements of applicable laws
and regulations or because of the operation of its fraud detection controls shall not be considered a Loss, provided the Bitcoin
Custodian is acting reasonably and in good faith. The Bitcoin Custody Agreement provides that should a Loss of the Fund’s
bitcoin or fiat currency due to the negligence, fraud, willful or reckless misconduct of the Bitcoin Custodian or a breach by
the Bitcoin Custodian of its Standard of Care occur, the Bitcoin Custodian will, as soon as practicable, return to the Trust a
quantity of the same digital asset that is equal to the quantity of digital assets involved in the Loss, or return to the Trust
a quantity of the same fiat currency that is equal to the quantity of fiat currency involved in the Loss (if the Loss involved
the Fiat Account). The Bitcoin Custody Agreement provides that (i) the Bitcoin Custodian does not own or control the underlying
software protocols of networks which govern the operation of digital assets (including the Bitcoin Blockchain), (ii) the Bitcoin
Custodian makes no guarantees regarding their security, functionality, or availability, and (iii) in no event shall the Bitcoin
Custodian be liable for or in connection with any acts, decisions, or omissions made by developers or promoters of digital assets,
including bitcoin.
The
Bitcoin Custody Agreement’s “Force Majeure” provision provides that in no event shall the Bitcoin Custodian
be liable for any delays, failure in performance or interruption of service which result directly or indirectly from any cause
or condition, whether or not foreseeable, beyond the Bitcoin Custodian’s reasonable control, including, but not limited
to, any act of God, nuclear or natural disaster, epidemic, action or inaction of civil or military authorities, act of war, terrorism,
sabotage, civil disturbance, strike or other labor dispute, accident, or state of emergency; provided, however, that for the avoidance
of doubt, the Bitcoin Custody Agreement’s Force Majeure provision shall not apply in respect of System Failures or Downtime,
which are subject to other respective provisions of the Bitcoin Custody Agreement. The occurrence of an event described in the
Force Majeure provision shall not affect the validity and enforceability of any remaining provisions of the Bitcoin Custody Agreement.
Under
the Bitcoin Custody Agreement, each of the Bitcoin Custodian and the Trust has agreed to indemnify and hold harmless the other
party from any third-party claim or third-party demand (including reasonable attorneys’ fees and expenses) (collectively,
“Damages”) arising out of or related to the Bitcoin Custodian’s or the Trust’s, as the case may be, non-performance
of its obligations under or material breach of the Bitcoin Custody Agreement and inaccuracy in any of the Bitcoin Custodian’s
or the Trust’s, as the case may be, representations or warranties in the Bitcoin Custody Agreement. In addition, the Bitcoin
Custodian agrees to indemnify the Trust in the event of Damages relating to the holding of the Fund’s bitcoin and fiat currency
by the Bitcoin Custodian as contemplated by the Bitcoin Custody Agreement, including any loss or damage caused by any act or omission
of any employee of the Bitcoin Custodian or any agent, representative or independent contractor engaged by the Bitcoin Custodian,
whether or not such act or omission occurred within the scope of his employment or engagement. The Bitcoin Custody Agreement provides
that “Damages” shall not include any losses, claims, damages, liabilities or expenses arising from any fluctuation
in market price, forks, governance changes, airdrops or other events which impact all holders of a digital asset such as bitcoin
globally as a class.
The
Bitcoin Custody Agreement provides the Bitcoin Custodian, its affiliates, service providers, or any of their respective officers,
directors, agents, joint venturers, employees or representatives, shall not be liable for (i) any losses or claims arising out
of actions that are in the Trust’s control and related to its use of the Bitcoin Custodian’s online platform, including
but not limited to, the Trust’s failure to follow security protocols, the Bitcoin Custodian’s controls, improper instructions,
failure to secure the Trust’s credentials from third parties, or anything else in the Trust’s control and (ii) any
amount greater than the value of the bitcoin on deposit in the Fund’s bitcoin Account at the time of, and directly relating
to, the events giving rise to the liability occurred, the value of which shall be determined in accordance with the Chicago Mercantile
Exchange Bitcoin Reference Rate or any successor thereto. No party shall be liable to the other parties (whether under contract,
tort (including negligence) or otherwise) for any indirect, incidental, special, punitive or consequential losses suffered or
incurred by the other parties (whether or not any such losses were foreseeable or within the contemplation of the parties). This
means, by way of example only (and without limiting the scope of the above), that if the Trust claims that the Bitcoin Custodian
failed to process a withdrawal request properly, the Trust’s damages are limited to no more than the value of the bitcoin
at issue in the withdrawal request, and that the Trust may not recover for lost profits, lost business opportunities, or other
types of special, incidental, indirect, intangible, or consequential damages in excess of the value of the bitcoin at issue in
the withdrawal. The Bitcoin Custodian shall not be liable to the Trust or anyone else for any loss or injury resulting directly
or indirectly from any damage or interruptions caused by any computer viruses, spyware, scamware, trojan horses, worms, or other
malware that may affect the Trust’s computer or other equipment, provided such malware did not originate from the Bitcoin
Custodian or its agents.
The
Bitcoin Custody Agreement provides that the Bitcoin Custodian has obtained insurance coverage by a reputable insurance company
with respect to digital assets custodied with the Bitcoin Custodian, in accordance with its internal standards for maintaining
such insurance and subject to change at the Bitcoin Custodian’s discretion. The Bitcoin Custody Agreement provides that
the Bitcoin Custodian shall provide the Trust with notice of material changes in its insurance coverage.
The
Bitcoin Custody Agreement will commence on the date of execution and continue until terminated in accordance with its provisions.
The Bitcoin Custody Agreement may be terminated by either party upon 90 days written notice to the other party; provided, however,
that if the Bitcoin Custody Agreement is terminated, the Bitcoin Custodian shall use commercially reasonable efforts to cooperate
with the Trust’s transition to a replacement custodian and if the Trust is unable to engage a replacement custodian using
commercially reasonable efforts within such 90 day period, the Bitcoin Custodian terminates the Bitcoin Custody Agreement, then
the Bitcoin Custodian shall continue to act as Bitcoin Custodian pursuant to the terms of the Bitcoin Custody Agreement until
such time as the Trust engages a replacement custodian, provided that the Trust uses reasonable commercial efforts to promptly
engage a replacement custodian. Either party (the “Terminating Party”) may terminate the Bitcoin Custody Agreement
at any time on written notice to the other party (the “Defaulting Party”), such termination to take effect (i) on
the tenth business day after the delivery of written notice of termination by the Terminating Party to the Defaulting Party, unless
the Defaulting Party has cured the event triggering a termination right to the satisfaction of the Terminating Party, acting reasonably,
or (ii) immediately after delivery of written notice of termination by the Terminating Party to the Defaulting Party if the event
triggering a termination right is incapable of being cured within ten business days, in the following circumstances. First, any
representation, warranty, certification or statement made by the Defaulting Party under the Bitcoin Custody Agreement was or becomes
incorrect in any material respect when made; second, the Defaulting Party materially breaches, or fails in any material respect
to perform any of its obligations under, the Bitcoin Custody Agreement; third, the Defaulting Party requests a postponement of
maturity or a moratorium with respect to any indebtedness or is adjudged bankrupt or insolvent, or there is commenced against
the Defaulting Party a case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or the
Defaulting Party files a petition for bankruptcy or an application for an arrangement with its creditors, seeks or consents to
the appointment of a receiver, administrator or other similar official for all or any substantial part of its property, admits
in writing its inability to pay its debts as they mature, or takes any corporate action in furtherance of any of the foregoing,
or fails to meet applicable legal minimum capital requirements; fourth, a Change of Control (as defined in the Bitcoin Custody
Agreement) of the Defaulting Party, or an event, change or development that causes or is likely to cause a Material Adverse Effect
(as defined in the Bitcoin Custody Agreement) on the Defaulting Party, or in the ability of the Defaulting Party to fulfill its
responsibilities under the Bitcoin Custody Agreement, occurs; fifth, with respect to the Trust’s right to terminate, the
Bitcoin Blockchain undergoes a fork and becomes a forked network, and the Trust disagrees with the Bitcoin Custodian’s choice
of which forked network to support; or with respect to the Trust’s right to terminate, applicable laws and regulations or
any change therein or in the interpretation or administration thereof that may have a Material Adverse Effect (as defined in the
Bitcoin Custody Agreement) on the Trust or the rights of the Trust with respect to any services covered by the Bitcoin Custody
Agreement.
The
Bitcoin Custodian has the right to immediately (i) take actions the Bitcoin Custodian determines appropriate to comply with applicable
law and regulations and in accordance with its Bank Secrecy Act and Anti-Money Laundering compliance program (“BSA/AML Program”),
(ii) suspend the Fund’s bitcoin Account or Fiat Account, (iii) freeze/lock the funds and assets in all such accounts, and
(iv) suspend the Trust’s access to the Bitcoin Custodian’s platform or its account there (collectively, an “account
suspension”), if: (A) the Bitcoin Custodian is required to do so by a regulatory authority, court order, facially valid
subpoena, or binding order of a governmental authority, (B) the Bitcoin Custodian reasonably and in good faith believes the Trust
has violated applicable laws and regulations in connection with the Fund’s bitcoin Account or Fiat Account, or the Bitcoin
Custodian is required to do so under the Bitcoin Custodian’s BSA/AML Program, (C) the Bitcoin Custodian believes someone
is attempting to gain unauthorized access to the account, or (D) the Bitcoin Custodian believes there is unusual activity in the
account. Except as set forth above, the Bitcoin Custodian shall not suspend the Trust’s access to the Bitcoin Account or
the Fiat Account, and any suspension of the Trust’s access to such accounts shall constitute a breach of the Bitcoin Custody
Agreement. In the case of an account suspension due to (C) or (D) of this paragraph, the Bitcoin Custodian shall restore the Trust’s
normal access to the Bitcoin Account or Fiat Account as promptly as reasonably possible without putting the bitcoin and fiat currency
in such accounts at risk. In the case of an account suspension due to (A) or (B) of this paragraph, the Bitcoin Custodian shall
permit the Trust to withdraw the Fund’s bitcoin and fiat currencies from Bitcoin Account or Fiat Account as soon as permitted
by applicable laws and regulations or the applicable court order, subpoena, or regulatory or governmental authority, and for ninety
(90) days thereafter.
Non-Digital
Custodian
In
its capacity as the Non-Digital Custodian, currently U.S. Bank, N.A., holds the Fund’s securities, cash and/or cash equivalents
pursuant to a custodial agreement. The Non-Digital Custodian is located at 1555 North Rivercenter Drive, Suite 302, Milwaukee,
Wisconsin 53212. U.S. Bank, N.A. is a nationally chartered bank, regulated by the Office of the Comptroller of the Currency, Department
of the Treasury, and is subject to regulation by the Board of Governors of the Federal Reserve System.
Non-Digital
Custody Agreement. Under the Non-Digital Custody Agreement between the Non-Digital Custodian, Sponsor, and the Trust,
upon the Sponsor’s instructions, the Non-Digital Custodian will establish and maintain a segregated account or accounts
for and on behalf of a Fund, into which account or accounts may be transferred cash and/or securities. Upon instructions from
the Trust or Sponsor, the Non-Digital Custodian will facilitate the transfer and management of assets, including cash, within
the Trust’s account(s). The Non-Digital Custodian’s fees are payable by the Trust, however, the Sponsor assumes such
fees via the Sponsorship Agreement with the Trust. The Non-Digital Custody Agreement specifies an initial term of three years,
with automatic renewal for successive one-year terms unless terminated earlier in accordance with the terms of the Agreement.
Either party can terminate the Agreement under certain conditions, such as material breach or failure to pay fees within a specified
period. Additionally, the Agreement may be terminated by the Trust for causes such as prolonged force majeure events, legal requirements,
or significant corporate events affecting the Non-Digital Custodian. In performing its duties, the Non-Digital Custodian is required
to exercise due care in accordance with reasonable commercial standards. The Non-Digital Custodian is generally not liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in connection with its duties under the Agreement,
except a loss arising out of or relating to the Custodian’s refusal or failure to comply with the terms of the Agreement
or from the Custodian’s bad faith, negligence or willful misconduct in the performance of its duties under this Agreement.
Liability of the Non-Digital Custodian under the Agreement is generally limited to direct damages caused by its failure to perform
its obligations in accordance with the agreed standard of care. The Trust is obligated to indemnify the Non-Digital Custodian
against losses, expenses, damages, and liabilities incurred in the performance of its duties under the Agreement, except where
such issues arise from the Non-Digital Custodian’s failure to meet the agreed standard of care. The Trust retains the discretion
to appoint additional custodians as necessary to manage its assets, subject to the terms of separate agreements. The Sponsor has
the authority to add or terminate Custodians as deemed appropriate. The governing law for the Non-Digital Custody Agreement is
the laws of the State of Minnesota.
The
Fund is subject to various risks associated with the potential insolvency of the Non-Digital Custodian. In the event of the Non-Digital
Custodian’s insolvency, the Fund’s assets held under custody might be subject to legal and financial complexities,
which would subject the Fund to the following risks:
| ● | Access
to Assets: In the case of the Non-Digital Custodian’s insolvency, there may be
delays or difficulties in accessing the Fund’s assets held by the Non-Digital Custodian.
This situation could impact the Fund’s ability to meet its financial obligations
or to execute its investment strategies promptly. |
| ● | Asset
Recovery and Transfer: The process of recovering and transferring assets to a new custodian
in the event of insolvency may prove time-consuming and complex. This process might involve
legal proceedings and negotiations, potentially leading to a prolonged period during
which the assets are not actively managed or are inaccessible. |
| ● | Financial
Losses: The Fund may incur financial losses if the assets held by the Non-Digital Custodian
are entangled in insolvency proceedings. The Fund might not recover the full value of
its assets, particularly if any part of the assets becomes part of the Non-Digital Custodian’s
bankruptcy estate. |
| ● | Operational
Disruptions: Transitioning to a new custodian may cause operational disruptions. This
includes administrative burdens, potential errors during the transfer of records and
assets, and the need to establish new operational protocols. |
In
addition to the foregoing risks, the Fund would be subject to additional risks if the Custody Agreement is terminated, which include:
| ● | Cost
Implications: Terminating the agreement and engaging a new custodian might incur additional
costs, including early termination fees, transfer fees, and higher fees charged by a
new custodian. |
| ● | Continuity
of Service: There is a risk of service interruptions during the transition period, which
might affect the Fund’s ability to execute transactions and manage its assets effectively. |
Marketing
Agent
The
Fund employs Foreside Fund Services, LLC, a wholly-owned subsidiary of Foreside Financial Group, LLC (d/b/a ACA Group) as the
Marketing Agent for the Fund. The Marketing Agent’s principal business address is Three Canal Plaza, Suite 100, Portland,
Maine 04101. The Marketing Agent Agreement among the Marketing Agent, the Sponsor, and the Trust calls for the Marketing Agent
to work with the Cash Custodian 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 U.S. Securities and Exchange Commission (“SEC”) and a member of FINRA.
Marketing
Agent Agreement. Under the Marketing Agent Agreement, the Trust engaged the Marketing Agent to perform marketing services.
The Marketing Agent is registered as a broker-dealer under the Securities Exchange Act of 1934 and a member of FINRA. The Marketing
Agent’s services include assisting with Authorized Participant Agreements, maintaining creation and redemption order confirmations,
providing Prospectuses to Authorized Participants, ensuring compliance with SEC and FINRA advertising rules, and approving marketing
materials. The Trust, in turn, is responsible for creating, issuing, and redeeming Creation Units, providing the Marketing Agent
with necessary documentation, and ensuring the availability of Prospectuses and Statements of Additional Information. The Trust
is obligated to indemnify the Marketing Agent against losses arising from its breach of obligations or non-compliance with laws,
except for losses resulting from the Marketing Agent’s provision of inaccurate information. Conversely, the Marketing Agent
will indemnify the Trust for losses arising from its breach of the agreement or failure to comply with applicable laws. The agreement
sets out that the Marketing Agent is not entitled to compensation or reimbursement of expenses from the Trust, with any such remuneration
to be paid by the Sponsor under a separate agreement (the Marketing Agent Services Agreement). The term of the agreement is two
years, with provisions for automatic renewal and termination options available to both parties. Confidential information is protected
under the agreement, with specific obligations for non-disclosure and non-use, along with provisions for regulatory disclosure
and information security. The agreement is governed by Delaware law.
Bitcoin
Advisers
7RCC
Global Inc. (“7RCC”) and Nexo Inc. (“Nexo”) each serve as a “Bitcoin Adviser” to the Fund.
7RCC has its principal offices at 90 Alton Rd, Suite 1105, Miami Beach, FL 33139. 7RCC, established in 2021, is an alternative
investment manager specializing in bridging the digital asset industry with environmentally conscious investment strategies. The
firm focuses on developing innovative financial products that align with Environmental, Social, and Governance principles, catering
to investors seeking sustainable investment opportunities. The team at 7RCC comprises professionals with extensive backgrounds
in financial markets, blockchain technology, and sustainable investment practices. Their collective expertise enables the firm
to design and manage investment products that align with both financial performance and environmental responsibility. Nexo has
its principal offices at 89 Nexus Way, Camana Bay, Grand Cayman, KY1-9009, Cayman Islands. Nexo is a digital assets wealth platform
designed to empower clients to grow, manage, and preserve their crypto holdings. Since 2018, Nexo has provided opportunities to
forward-thinking clients in over 200 jurisdictions and has over $7 billion in AUM and $320 billion processed. Nexo’s all-in-one
platform combines advanced technology with a client-first approach, offering high-yield flexible and fixed-term savings, crypto-backed
loans, sophisticated trading tools, and liquidity solutions, including the first crypto debit/credit card.
As
Bitcoin Adviser, 7RCC and Nexo are responsible for providing the Sponsor and Administrator with research and analysis regarding
bitcoin, the bitcoin markets and carbon neutralization structures for use in the operation and marketing of the Fund. Neither
Bitcoin Adviser has any 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 7RCC (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
and Nexo 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.
Clearing
Brokers
StoneX
Financial Inc. – FCM Division (f/k/a INTL FCStone Financial Inc. - FCM Division) (“StoneX”) serves as the Fund’s
clearing brokers (the “Clearing Broker”) to execute and clear the Fund’s futures transactions and provide other
futures brokerage-related services. The Clearing Broker is registered as an FCM with the CFTC, is a member of the National Futures
Association (“NFA”) and is a clearing member of all major U.S. futures exchanges. The Clearing Broker is also a registered
as broker-dealer with the SEC and is a member of FINRA
Except
as indicated below, there have been no material civil, administrative, or criminal proceedings pending, on appeal, or concluded
against the Clearing Brokers or their principals in the past five (5) years.
Litigation
Disclosure for StoneX. Listed below are material administrative, civil, enforcement, or criminal complaints or actions filed
against StoneX Financial Inc. – FCM Division (f/k/a INTL FCStone Financial Inc. - FCM Division) where such complaints or
actions have not concluded and any material enforcement actions or complaints filed against the StoneX Financial Inc. - FCM Division
in the past three years.
| ● | On
March 16, 2023, the Clearing House Risk Committee at CME Group found that StoneX Financial,
Inc. violated Customer Gross Margining Technical Overview Requirements and CME Rule 980.G.
Pursuant to an offer of settlement in which StoneX Financial, Inc. neither admitted nor
denied the rule violations upon which the penalty is based, the Clearing House Risk Committee
imposed a $100,000.00 fine which was effective on March 16, 2023. |
| ● | On
January 20, 2023, the Clearing House Risk Committee at CME Group found that StoneX Financial
Inc. violated CME Rules 930.A and 930.F. Pursuant to an offer of settlement in which
StoneX Financial, Inc. neither admitted nor denied the rule violations upon which the
penalty is based, the Clearing House Risk Committee imposed a $50,000 fine which was
effective on January 20, 2023. |
| ● | On
December 15, 2022, the Market Regulation Department of CME notified StoneX Financial
Inc. (“SFI”) that it was conducting a formal investigation into block trades
placed in September 2022 that could potentially be in violation of CME Rule 526 and Market
Regulation Advisory Notice RA2004-5R. On July 6, 2023, CME notified SFI that it has referred
the case to Market Regulation’s Enforcement Division. Settlement negotiations are
ongoing. |
| ● | On
July 20, 2022, a subcommittee on the ICE Future US’s Business Conduct Committee
determined that in numerous instances between May 2020 and May 2021 StoneX Financial
Inc. and StoneX Markets LLC may have violated Exchange Rule 4.04 by engaging in improper
pre-hedging and adopting a risk policy that may have motivated employees to engage in
improper pre-hedging for certain contracts. In addition, the Committee found that StoneX
Financial Inc. and StoneX Markets LLC may have violated Exchange Rules 4.01(a), 4.07(c),
and 21.04. In accordance with the settlement offer, in which StoneX Financial Inc. and
StoneX Markets LLC neither admitted nor denied the alleged rule violations, StoneX Financial
Inc. and StoneX Markets LLC agreed to pay a collective monetary penalty of $425,000 and
disgorge $225,606.80 in profits. |
| ● | On
March 23, 2021, a subcommittee of the ICE Futures US’s Business Conduct Committee
determined that in numerous instances between February 2019 and May 2020, StoneX Financial
Inc. (“StoneX”), formerly INTL FCStone Financial Inc., may have violated
Exchange Rule 6.15(a) by failing to submit to the Exchange daily large trader reports
on reportable customer positions and Exchange Rule 4.01(a) by failing to have proper
processes for reporting large trader positions. The ICE Futures US Business Conduct Committee
imposed a $75,000 fine on StoneX Financial Inc. which was effective on March 23, 2021. |
| ● | After
a historic move in the natural gas market in November of 2018, INTL FCStone Financial
Inc. – FCM Division (“IFF”) experienced a number of customer deficits.
IFF soon thereafter initiated NFA arbitrations, seeking to collect these debits, and
has also been countersued and sued in a number of these arbitrations. These accounts
were managed by Optionsellers.com, (“Optionsellers”) who is a Commodity Trading
Advisor (“CTA”) authorized by investors to act as attorney-in-fact with exclusive
trading authority over these investors’ trading accounts. These accounts cleared
through IFF. After this significant and historic natural gas market movement, the accounts
declined below required maintenance margin levels. IFF’s role in managing the accounts
was limited. As a clearing firm, IFF did not provide any investment advice, trading advice,
or recommendations to customers of Optionsellers who chose to clear with IFF. Instead,
it simply executed and cleared trades placed by Optionsellers on behalf of Optionsellers’
customers. Optionsellers is a CFTC registered CTA operating under a CFTC Rule 4.7 exemption
from registration. Optionsellers engaged in a strategy that primarily involved selling
options on futures products. The arbitrations between IFF, Optionsellers, and the Optionsellers
customers are currently ongoing. Further, StoneX Financial Inc. is subject to litigation
and regulatory enforcement in the normal course of business. Except as discussed above,
the current or pending civil litigation or administrative proceedings in which StoneX
Financial Inc. is involved are not expected to have a material effect upon its condition,
financial or otherwise. StoneX Financial Inc. vigorously defends, as a matter of policy,
civil litigation, reparation, arbitration proceedings, and enforcement actions brought
against it. |
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 Jane
Street Capital, LLC, Citadel Securities LLC and Goldman Sachs & Co. LLC as Authorized Purchasers. JSCT, LLC (an affiliate
of Jane Street Capital, LLC) is also a Bitcoin Trading Counterparty of the Fund. 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 Exchange 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 values the bitcoin held
by the Fund based on the Bitcoin Price calculated by the Index, unless otherwise determined by the Sponsor in its sole discretion.
See “Investment Objective and Investment Strategies—Principal Investment Strategies—Bitcoin Valuation”
for additional information regarding the calculation methodology of the Bitcoin Price. 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 the need to “fair value”
bitcoin will be a common occurrence.
The
Administrator will value the Fund’s Carbon Credit Futures using the same methodology of the Index (and respective Sub-index),
specifically, the value of the respective futures contracts will be the settlement price at closing on the primary trading exchange
for such Carbon Credit Future. For additional information regarding the valuation of Carbon Credit Futures, see “Investment
Objective and Investment Strategies—Principal Investment Strategies—The Index” for additional information. If
the Sponsor in its sole discretion determines that the this price does not reflect the accurate value of a given Carbon Credit
Future, then the Sponsor will instruct the Administrator to employ an alternative method to determine the fair value of the Fund’s
assets. In determining an alternative fair value method, the Sponsor may consider such criteria as observable market-based inputs,
including market quotations and/or trading platforms on which Carbon Credit Futures are traded. The Sponsor does not anticipate
that the need to “fair value” bitcoin or Carbon Credit Futures will be a common occurrence.
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 values the bitcoin held by the Fund based on the Bitcoin Price calculated by the Index 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.
The
Sponsor will monitor for significant events related to crypto assets that may impact the value of bitcoin and will determine in
good faith, and in accordance with its valuation policies and procedures, whether to fair value the Fund’s bitcoin and/or
Carbon Credit Futures on a given day (e.g., if an Index Pricing Source or price of a Carbon Credit Future is not available).
In certain circumstances, the Sponsor will determine whether to fair value the Fund’s assets (bitcoin or Carbon Credit Futures)
on a given day on whether certain pre-determined criteria have been met. For example, the Sponsor may fair value the Fund’s
bitcoin or Carbon Credit Futures using observed market transactions from one or more exchanges. The Sponsor may also fair value
the Fund’s bitcoin using a combination of inputs in certain situations (e.g., using observed market transactions, OTC quotations
from brokers, etc.). Accordingly, the NAV of the Fund may reflect the fair value of bitcoin or Carbon Credit Futures rather than
market prices on certain exchanges at 4:00 p.m. ET. Fair value pricing involves subjective judgments and it is possible that a
fair value determination for bitcoin or Carbon Credit Futures may be materially different than the value that could be realized
upon the sale of such bitcoin or Carbon Credit Future. In addition, fair value pricing could result in a difference between the
prices used to calculate the Fund’s NAV and the prices used by the Index (i.e., the Bitcoin Price and/or prices for
the Carbon Credit Futures). The Sponsor, in conjunction with the Administrator, will work in good faith to determine the fair
value and implement the correct pricing for the Fund’s NAV.
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 the Exchange typically
closes at 4:00 p.m. ET. However, NAVs are not officially struck until later in the day.
In
order to provide updated information relating to the Fund for use by Shareholders and market professionals, a
third-party financial data provider 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 bitcoin and Carbon Credit Futures during the trading day. The Fund’s bitcoin holdings will be
priced using CME Bitcoin Real Time Price. The Fund’s Carbon Credit Futures will be priced using the last traded price for each
contract. Changes in the value of cash equivalents are not included in the calculation of indicative value. For this and other
reasons, the indicative fund value disseminated during Exchange hours should not be viewed as an actual real time update of the NAV.
NAV is calculated only once at the end of each trading day.
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, as calculated by a third-party financial data provider,
every 15 seconds during regular Exchange core trading session hours of 9:30 a.m. ET to 4:00 p.m. ET by one or more major market data
vendors. 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 Trust’s structure and operation you should consider before
you purchase Shares. The Sponsor may use this notice of conflicts as a defense against any claim or other proceeding made.
The
Sponsor’s principals, managers, officers and employees, do not devote their time exclusively to the Fund. Notwithstanding
obligations and expectations related to the management of the Sponsor, the Sponsor’s principals, officers and employees
may be directors, officers or employees of other entities, and may manage assets of other entities, including the other funds
of the Trust, through the Sponsor or otherwise. As a result, the principals could have a conflict between responsibilities to
the Fund on the one hand and to those other entities on the other.
The
Sponsor and its principals, officers and employees may trade securities, futures and related contracts for their own accounts,
creating the potential for preferential treatment of their own accounts. Shareholders will not be permitted to inspect the trading
records of such persons, or any written policies of the Sponsor related to such trading. A conflict of interest may exist if their
trades are in the same markets and at approximately the same times as the trades for the Fund. A potential conflict also may occur
when the Sponsor’s principals trade their accounts more aggressively or take positions in their accounts that are opposite,
or ahead of, the positions taken by the Fund.
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 your best interests, including the authority of the Sponsor to
allocate expenses to and between the funds of the Trust. Shareholders have very limited voting rights with respect to the Fund,
which will limit the ability to influence matters such as amendment of the Trust Agreement, change in the Fund’s basic investment
policies, or dissolution of the Fund or the Trust.
The
Sponsor serves as the Sponsor to the Fund and serves as the sponsor or investment adviser to investment companies and commodity
pools other than 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 investment companies or pools it manages. In addition, the Sponsor may be required
to indemnify the officers and directors of the other investment companies or pools, if the need for indemnification arises. This
potential indemnification will 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.
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.
If
the Sponsor acquires knowledge of a potential transaction or arrangement that may be an opportunity for the Fund, it shall have
no duty to offer such opportunity to the Fund. The Sponsor will not be liable to the Fund or the Shareholders for breach of any
fiduciary or other duty if the Sponsor pursues such opportunity or directs it to another person or does not communicate such opportunity
to the Fund and is not required to share income or profits derived from such business ventures with the Fund.
The
Sponsor might have a potential future conflict of interest if the Sponsor, a new sponsor, or sub-adviser were to register as a
broker-dealer or become affiliated with a broker-dealer. In such case, the Sponsor, new sponsor, or sub-adviser, as the case may
be, would develop and implement appropriate procedures designed to prevent the use and dissemination of material non-public information
regarding the Fund’s holdings.
Under
its code of ethics (the “COE”), the Sponsor and its affiliates are required to adhere to a series of prescribed steps
prior to engaging in trading activities, including transactions involving the Fund’s Shares or bitcoin futures contracts.
The preliminary step requires employees to seek pre-clearance for any trade in Covered Securities, which is a broad category encompassing
various financial instruments, including stocks, bonds, and derivatives such as bitcoin futures. This pre-clearance is obtained
by submitting a detailed request via an online Compliance Portal, which is then reviewed by the Sponsor’s Chief Compliance
Officer (“CCO”) or designee.
The
COE specifies certain transactions that require heightened oversight, including participation in initial public offerings (“IPOs”),
secondary offerings, and private placements. Employees must obtain not just pre-clearance but also direct approval from the CCO
for such activities. Furthermore, the code strictly prohibits trading based on non-public, material information, commonly known
as front-running, to prevent any potential conflicts with client interests and maintain the integrity of client transactions.
Reporting
is another critical aspect of the COE. Employees are mandated to file detailed reports of their trading activities on a quarterly
basis, as well as annual reports detailing their holdings. These reports are subject to review by the CCO to identify any potential
or actual conflicts of interest or indications of unethical behavior. Exemptions from these reporting requirements are limited
and well-defined, applying mainly to accounts that are managed by independent third-party managers over which the employee has
no direct control or influence.
The
COE provides a structured compliance framework that outlines procedures for reminders and steps to address instances of late or
missed report submissions. Should these situations occur, the COE sets out a clear process for enacting disciplinary measures.
This framework is designed to support a trading environment that aligns with regulatory expectations.
Resolution
of Conflicts
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.
privacy
policy
The
following discussion is qualified in its entirety by reference to the privacy policy. A copy of the privacy policy is available
at https://www.tidalfinancialgroup.com/privacy-policy/.
The
Sponsor, the Trust, and the Fund have adopted a privacy policy relating to the collection, maintenance, and use of nonpublic personal
information about the Fund’s current and former investors, as required under federal law. Federal law gives investors
the right to limit some but not all sharing of their nonpublic personal information. Federal law also requires the Sponsor to
tell investors how it collects, Shares, and protects such nonpublic personal information.
Collection
of Nonpublic Personal Information
The
Sponsor may collect or have access to nonpublic personal information about current and former Fund investors for certain purposes
relating to the operation of the Fund. This information may include information received from investors, such as their name, social
security number, telephone number, and address, and information about investors’ holdings and transactions in Shares of
the Fund.
Use
and Disclosure of Nonpublic Personal Information
The
Sponsor does not sell nonpublic personal information to any third parties. The Sponsor primarily uses investors’ nonpublic
personal information to complete financial transactions that may be requested. The Sponsor may disclose investors’ nonpublic
personal information to third parties under specific circumstances described in the privacy policy. These circumstances include,
among others, information needed to complete financial transactions, information released at the direction of an investor, and
certain information requested by courts, regulators, law enforcement, or tax authorities. Investors may not opt out of these disclosures.
Investors’
nonpublic personal information, particularly information about investors’ holdings and transactions in Shares of the Fund,
may be shared between and amongst the Sponsor and the Fund. An investor cannot opt-out of the sharing of nonpublic personal
information between and amongst the Sponsor and the Fund. However, the Sponsor and the Fund will not use this information
for any cross-marketing purposes. In other words, all investors will be treated as having “opted out” of receiving
marketing solicitations from the Fund.
Protection
of Nonpublic Personal Information
As
described in the privacy policy, the Sponsor takes safeguards to protect investors’ nonpublic personal information, which
include, among others, restricting access to such information, requiring third parties to follow appropriate standards of security
and confidentiality, and maintaining physical, technical, administrative, and procedural safeguards.
The
Sponsor’s Website is hosted in the United States and any data provided to the Sponsor is stored in the United States. If
you choose to provide Personal Data from regions outside of the United States, then by your submission of such data, you acknowledge
and agree that: (a) you are transferring your personal information outside of those regions to the United States voluntarily and
with consent; (b) the laws and regulations of the United States shall govern your use of the provision of your information, which
laws and regulations may differ from those of your country of residence; and (c) you permit your personal information to be used
for the purposes herein and in the Privacy Policy above.
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. There is no cap on expenses
for the above-listed fees payable by the Sponsor.
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 is paid in U.S. dollars. In paying the Management Fee, the Sponsor may need to direct the
Fund’s bitcoin to be exchanged for U.S. dollars and Carbon Credit Futures to be sold. 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 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.
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.
MEETINGS
Meetings
of the Trust’s Shareholders may be called by the Sponsor and will be called by it upon the written request of Shareholders
holding at least 25% of the outstanding Shares of the Trust or the Fund, as applicable (not including Shares acquired by the Sponsor
through its initial capital contribution). The Sponsor shall deposit in the United States mail or electronically transmit written
notice to all Shareholders of the Fund of the meeting and the purpose of the meeting, which shall be held on a date not less than
30 nor more than 60 days after the date of mailing of such notice, at a reasonable time and place. Where the meeting is called
upon the written request of the Shareholders of the Fund, or any other Fund, as applicable, such written notice shall be mailed
or transmitted not more than 45 days after such written request for a meeting was received by the Sponsor.
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; |
| ● | Our
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 filed with
the SEC on August 14, 2024; and |
| ● | Out
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 filed
with the SEC on November 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:
Nexo
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.
Nexo
7RCC Spot Bitcoin and Carbon Credit Futures ETF
Index
to Financial Statements
Report
of Independent Registered Public Accounting Firm
[to
be provided by pre-effective amendment]
Nexo
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
Nexo
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.
Nexo
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 |
| Intercontinental
Exchange (“ICE”) EUA (Carbon Emission Allowances) futures contracts |
|
|
| ICE
California Carbon Allowance Vintage Future contracts |
|
|
| ICE
RGGI (CO2 allowances) futures contracts |
|
|
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
NEXO
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 22, 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 than prospectuses filed in reliance on Rule 430A,
shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
The
undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred
to by the undersigned Registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of the undersigned Registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
(6) That, or purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement 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.
(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly caused this amendment to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, State of Wisconsin, on December
20, 2024.
| |
Tidal Commodities Trust I |
| |
|
|
| |
By: Tidal Investments LLC, Sponsor |
| |
|
|
| |
By |
/s/ Guillermo
Trias |
| |
|
Name: Guillermo
Trias
Title: Principal
Executive Officer of Sponsor
|
Pursuant
to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following
persons in the capacities and on the dates indicated. The document may be executed by signatories hereto on any number of counterparts,
all of which shall constitute one and the same instrument. The undersigned members and officers of Tidal Investments LLC the sponsor
of Tidal Commodities Trust I, hereby constitute and appoint Guillermo Trias and Daniel Carlson, each of them with full power to
act with full power of substitution and resubstitution, our true and lawful attorneys-in-fact with full power to execute in our
name and behalf in the capacities indicated below this Registration Statement on Form S-1 and any and all amendments thereto,
including post-effective amendments to this Registration Statement and to sign any and all additional registration statements
relating to the same offering of securities as this Registration Statement that are filed pursuant to Rule 462(b) of the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and thereby ratify and confirm that such attorneys-in-fact, or any of them, or their substitutes
shall lawfully do or cause to be done by virtue hereof.
Signature
|
Capacity
|
Date
|
/s/ Guillermo
Trias
Guillermo
Trias
|
Chief
Executive Officer/President of the Sponsor |
December
20, 2024 |
| |
|
|
/s/ Guillermo
Trias
Ronnie
Riven
|
Chief
Financial Officer/Principal Financial Officer |
December
20, 2024 |
TIDAL COMMODITIES TRUST I
Exhibit 23.1
 |
taitweller.com |
| |
|
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use of our name under the caption “Experts”,
in the Registration Statement filed on Form S-1 by Tidal Commodities Trust I, with respect to Nexo 7RCC Spot Bitcoin and Carbon Credit
Futures ETF.
|
 |
| |
TAIT, WELLER & BAKER LLP
|
Philadelphia, Pennsylvania
December 20, 2024
Tait Weller • Philadelphia Office • O: 215.979.8800
• F: 215.979.8811 • Two Liberty Place • 50 S. 16th Street • Suite 2900 • Philadelphia, PA 19102-2529
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