10-K: Fidelity Wise Origin Bitcoin Fund Details Shareholder Rights and Operational Structure in 10-K Filing

Fidelity Wise Origin Bitcoin Fund's 10-K filing outlines the limited rights of shareholders, the operational structure of the trust, and its investment strategy focused on tracking the performance of Bitcoin.

Summary

• The Fidelity Wise Origin Bitcoin Fund is a Delaware statutory trust that issues shares representing fractional ownership of the trust's assets, primarily Bitcoin.
• Shares are only issued in blocks of 25,000, known as Baskets, and are traded on the Cboe BZX Exchange under the ticker FBTC.
• Shareholders have limited voting rights and do not participate in the management or control of the trust's operations.
• The trust aims to track the performance of Bitcoin as measured by the Fidelity Bitcoin Reference Rate, adjusted for expenses.
• The trust's Bitcoin holdings are valued daily at 4:00 PM EST using the same methodology as the index.
• The trust's operations commenced on January 11, 2024, and prior to this date, activities were limited to organizational matters and registration of shares.
• The Sponsor, FD Funds Management LLC, has the authority to change the trust's investment objective, index, or strategy without shareholder approval.
• The trust may make distributions in cash or in kind, and upon termination, assets will be liquidated and distributed to creditors and then shareholders.
• The trust creates and redeems shares only in Baskets, and only Authorized Participants can place orders for creation or redemption.
• The trust's net asset value (NAV) is calculated daily using a volume-weighted median price of Bitcoin from multiple spot markets to deter manipulation.
• The Sponsor has waived the 0.25% management fee until July 31, 2024.
• The trust's financial statements are prepared in accordance with GAAP, using an exchange-traded price from the principal market for Bitcoin.

Sentiment

Score: 7

Explanation: The document is largely factual and descriptive, outlining the structure and operations of the trust. The sentiment is neutral to slightly positive, as it provides a clear picture of the investment vehicle and its potential benefits, while also acknowledging the risks involved.

Positives

• The trust provides investors with exposure to Bitcoin through a traditional brokerage account, avoiding the complexities of direct ownership.
• The use of a volume-weighted median price from multiple spot markets for NAV calculation helps to deter manipulation.
• The Sponsor's fee waiver until July 31, 2024, reduces costs for investors in the short term.
• The trust is passively managed, which may appeal to investors seeking a low-cost investment option.
• The trust's structure allows for the potential distribution of incidental rights and/or IR assets to shareholders.

Negatives

• Shareholders have limited voting rights and no direct control over the trust's operations.
• The Sponsor has the right to change the trust's investment objective, index, or strategy without shareholder approval.
• The trust may incur extraordinary expenses not covered by the Sponsor, which could reduce the value of the shares.
• The trust's reliance on a single custodian for its Bitcoin holdings introduces a concentration risk.
• The trust's value is tied to the price of Bitcoin, which is known for its volatility.

Risks

• The value of the shares is directly tied to the price of Bitcoin, which is highly volatile and subject to market fluctuations.
• The trust's operations are dependent on third-party service providers, including the custodian, administrator, and transfer agent.
• The trust's reliance on a single custodian for its Bitcoin holdings introduces a concentration risk.
• Regulatory changes in the digital asset space could have a significant impact on the trust and the value of its shares.
• The trust may be subject to cybersecurity risks, which could result in the loss of Bitcoin or other assets.
• The trust's structure as a grantor trust means that shareholders are directly responsible for taxes on the trust's income and expenses.
• The trust may be subject to forks in the Bitcoin network, which could result in the receipt of new digital assets that may be difficult to value or sell.

Future Outlook

The trust aims to track the performance of Bitcoin, and the Sponsor may adjust the share price through stock splits or reverse stock splits to maintain convenient trading ranges. The Sponsor may also change the trust's investment objective, index, or strategy at any time, subject to regulatory requirements.

Management Comments

• The Sponsor believes that use of the Index mitigates against idiosyncratic market risk, as the failure of any individual spot market will not materially impact pricing for the Trust.
• The Sponsor believes the fact that there are multiple bitcoin spot markets contributing prices to the NAV makes manipulation more difficult in a well-arbitraged and fractured market.
• The Sponsor expects that its bitcoin trading counterparties will be able to provide pricing based on the Index price at 4:00 p.m. EST, which would minimize or eliminate any such shortfall.

Industry Context

This announcement is part of the growing trend of institutional investment in digital assets, with the Fidelity Wise Origin Bitcoin Fund being one of several exchange-traded products that provide exposure to Bitcoin. The document highlights the regulatory landscape and the challenges of valuing and securing digital assets.

Comparison to Industry Standards

• The Fidelity Wise Origin Bitcoin Fund is similar to other Bitcoin ETFs and ETPs in that it aims to track the price of Bitcoin, but it differs in its specific index methodology and fee structure.
• The use of a volume-weighted median price from multiple spot markets for NAV calculation is a common practice among Bitcoin ETPs to mitigate manipulation risks, but the specific markets and methodology may vary.
• The 0.25% management fee, while waived initially, is competitive with other similar products in the market.
• The trust's reliance on a single custodian, Fidelity Digital Asset Services, LLC, is a common practice, but some ETPs may use multiple custodians to diversify risk.
• The trust's structure as a grantor trust is a common approach for Bitcoin ETPs in the US, but some ETPs in other jurisdictions may use different structures.

Related Party Transactions

• The Sponsor, FD Funds Management LLC, is a wholly-owned subsidiary of FMR LLC.
• The Custodian, Fidelity Digital Asset Services, LLC, is an affiliate of the Sponsor.
• The Administrator, Fidelity Service Company, Inc., is an affiliate of the Sponsor.
• The Distributor, Fidelity Distributors Company LLC, is an affiliate of the Sponsor.
• The Index Provider, Fidelity Product Services LLC, is an affiliate of the Sponsor.
• FMR Capital, Inc., an affiliate of the Sponsor, purchased the initial seed share and seed baskets.

Stakeholder Impact

• Shareholders will be exposed to the price fluctuations of Bitcoin.
• Authorized Participants will be responsible for creating and redeeming shares in Baskets.
• The Sponsor will manage the trust's operations and receive a management fee (after the waiver period).
• Service providers will provide various services to the trust, including custody, administration, and transfer agency.
• The trust's operations will contribute to the overall market activity of Bitcoin.

Next Steps

• The trust will continue to operate and track the performance of Bitcoin.
• The Sponsor will continue to manage the trust's operations and may make changes to the investment strategy or fee structure.
• The trust will continue to create and redeem shares in Baskets through Authorized Participants.
• The Sponsor will monitor the market and regulatory environment and make adjustments as necessary.

Key Dates

Keywords

Bitcoin, Cryptocurrency, Exchange-Traded Product, Digital Assets, Trust, FBTC, Fidelity, NAV, Authorized Participants, Blockchain