10-K: Bitwise 10 Crypto Index Fund Reports Strong Performance in 2024, Driven by Crypto Market Surge

Bitwise 10 Crypto Index Fund's 2024 annual report reveals significant net asset growth driven by substantial unrealized gains in its crypto holdings, despite ongoing regulatory and market volatility.

Summary

• The Bitwise 10 Crypto Index Fund's 2024 annual report highlights a substantial net asset increase of $664.6 million, primarily driven by a $680.2 million net change in unrealized appreciation of crypto assets.
• Management fees increased to $25.8 million in 2024 from $12.9 million in 2023, reflecting the growth in the fund's net asset value.
• The fund's portfolio remains heavily concentrated in Bitcoin and Ethereum, comprising 72.7% and 15.9% of the total assets, respectively, as of December 31, 2024.
• The report acknowledges the inherent volatility and regulatory uncertainties within the crypto asset market, emphasizing potential risks to investors.
• The fund maintains a 99.99% correlation with the Bitwise 10 Large Cap Crypto Index, its benchmark, as of December 31, 2024.
• The fund does not have a redemption program and the shares may trade at a premium or discount to the NAV per share.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. While the fund experienced significant growth and positive performance, it also acknowledges substantial risks and regulatory uncertainties inherent in the crypto market. The emphasis on compliance and risk management suggests a cautious but optimistic outlook.

Positives

• The fund achieved a 99.99% correlation with its benchmark index, demonstrating effective tracking.
• The fund experienced significant unrealized gains, indicating positive performance of its crypto asset holdings.
• The fund has implemented cybersecurity measures and engages third-party experts to mitigate risks.
• The fund has a compensation recovery policy in place to address potential erroneous awards of incentive-based compensation.

Negatives

• The fund's shares traded at an average discount of 16.72% from December 10, 2020, to December 31, 2024, indicating a potential disconnect between market price and NAV.
• The fund's portfolio is heavily concentrated in Bitcoin and Ethereum, increasing its vulnerability to fluctuations in those assets.
• The fund's management fees increased to $25.8 million in 2024, representing a significant expense.
• The fund does not have a redemption program, limiting investors' ability to redeem shares at NAV.

Risks

• The extreme volatility of crypto asset prices could adversely affect the value of the fund's shares.
• The unregulated nature of blockchain technologies and crypto assets presents risks to the fund's portfolio.
• Regulatory changes or actions could restrict the use of crypto assets and negatively impact the fund's value.
• The fund may experience loss or theft of its portfolio crypto assets during transfers.
• The fund's reliance on a limited number of counterparties exposes it to potential financial losses and business disruptions.
• The fund's passive management strategy limits its ability to mitigate losses during adverse market conditions.
• 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.

Future Outlook

The report contains forward-looking statements regarding the Trust's financial conditions, results of operations, plans, and business, which are subject to risks and uncertainties.

Industry Context

The report acknowledges the rapidly developing crypto asset industry and the significant uncertainties surrounding the development, acceptance, and success of digital networks underlying the portfolio crypto assets.

Comparison to Industry Standards

• The report mentions Grayscale Bitcoin Trust (BTC) and its redemption program, which was found to be in violation of Regulation M by the SEC, as a comparable situation.
• The report notes that the Bitwise 10 Crypto Index Fund is competing with other investment vehicles that hold, are backed by, or are linked to one or more Portfolio Crypto Assets, such as exchange traded funds that hold Bitcoin and/or Ether.

Related Party Transactions

• The Trust has entered into a limited, non-exclusive, revocable license agreement with Bitwise Index Services, LLC, an affiliate of the Trust that is controlled by the same parent entity as the Sponsor, at no cost to the Trust or the Sponsor allowing the Trust to use the Index as the benchmark index for the Trust.

Stakeholder Impact

• Shareholders are exposed to the volatility and risks associated with crypto assets.
• Shareholders may experience fluctuations in the value of their shares due to market conditions and regulatory changes.
• Shareholders rely on the Sponsor to manage the Trust and make decisions in their best interests.

Next Steps

• The Sponsor will continue to monitor the regulatory landscape and adapt the Trust's operations accordingly.
• The Trust will rebalance its portfolio monthly to track the Bitwise 10 Large Cap Crypto Index.
• The Sponsor will continue to evaluate and select counterparties, trading venues, and execution tools on an ongoing basis.

Key Dates