10-K: Fidelity Wise Origin Bitcoin Fund Reports Strong Growth in First Year of Operations

Fidelity Wise Origin Bitcoin Fund's 10-K filing reveals significant asset growth and operational details for its inaugural year, highlighting its investment strategy and regulatory landscape.

Summary

• Fidelity Wise Origin Bitcoin Fund (FBTC) reported its annual results for the fiscal year ended December 31, 2024.
• The Trust's primary objective is to track the performance of bitcoin, adjusted for expenses, using the Fidelity Bitcoin Reference Rate (the Index).
• The Trust commenced operations on January 11, 2024, and holds bitcoin as its principal investment.
• As of December 31, 2024, the Trust's net assets reached $18.8 billion, a substantial increase from $40 at the end of 2023.
• This growth is attributed to an increase in outstanding shares to 230,678,476 and a 103.16% rise in the price of bitcoin during the year.
• The Trust's NAV per share increased by 104.50% from $40.00 to $81.80.
• The Trust held 201,556.08413894 bitcoin as of December 31, 2024.
• The net increase in net assets resulting from operations was $6.9 billion, driven by a $7.4 billion net change in unrealized appreciation on investment in bitcoin and a net realized loss of $390.6 million from the sale of bitcoin for share redemptions.
• The Trust pays the Sponsor an annual unified fee of 0.25% of the Trusts Bitcoin Holdings.
• The Sponsor waived the fee until July 31, 2024.
• The Trust creates and redeems shares in blocks of 25,000 (Baskets) only with Authorized Participants in exchange for cash.
• The Trust is treated as a grantor trust for U.S. federal income tax purposes, meaning its income and expenses flow through to the shareholders.
• The Trust relies on Fidelity and its Enterprise Cybersecurity organization for cybersecurity risk management.
• The Trust sold 500,000 Shares to FMR Capital, Inc., an affiliate of the Sponsor, for $40 per Share on January 9, 2024.
• On December 6, 2024, the Trust purchased all of the bitcoin assets of the Wise Origin Bitcoin Index Fund I, L.P in exchange for 1,453,476 Shares of the Trust with a value of $129,377,662.

Sentiment

Score: 8

Explanation: The document presents a positive outlook due to the significant growth in assets and NAV, indicating strong investor interest and market performance. However, the inherent risks associated with bitcoin and the regulatory uncertainties temper the overall sentiment.

Positives

• Significant growth in net assets and NAV per share indicates strong investor interest and positive market performance.
• The Trust's passive management strategy provides a cost-effective way for investors to gain exposure to bitcoin.
• The use of the Fidelity Bitcoin Reference Rate (the Index) and VWMP methodology aims to mitigate market risk and deter manipulation.
• The Sponsor's agreement to assume most of the Trust's expenses enhances cost efficiency for shareholders.
• The Trust's reliance on Fidelity's established cybersecurity framework provides a level of security for its digital assets.
• The Trust's structure as a grantor trust simplifies tax reporting for shareholders.

Negatives

• The Trust's concentration in a single asset (bitcoin) exposes it to significant market risks.
• The Trust experienced a net realized loss of $390.6 million from the sale of bitcoin for share redemptions.
• The Trust is reliant on third-party service providers, including affiliates of the Sponsor, which could present conflicts of interest.
• The Trust's NAV calculation, while intended to deter manipulation, may not always reflect an accurate bitcoin price.
• The Trust's periodic financial statements may not utilize the net asset value of the Trust determined by reference to the Index to the extent the methodology used to calculate the Index is deemed not to be consistent with GAAP.

Risks

• The value of the Shares is directly tied to the price of bitcoin, which is highly volatile and subject to market fluctuations.
• Regulatory changes in the U.S. and other jurisdictions could adversely affect the Trust and the value of its Shares.
• Cybersecurity threats and potential breaches could compromise the Trust's bitcoin holdings.
• Forks in the Bitcoin network could create uncertainty and potential tax liabilities for shareholders.
• The Trust's reliance on Authorized Participants for creation and redemption of Shares could impact market liquidity.
• The Trust's concentration in a single asset (bitcoin) exposes it to significant market risks.

Future Outlook

The document contains forward-looking statements regarding future events and performance, including movements in digital asset markets, the Trust's operations, and the Sponsor's plans. These statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially.

Industry Context

The report provides insights into the growing market for bitcoin ETFs and the increasing regulatory scrutiny of digital assets. It highlights the competition among ETF providers and the importance of factors such as fees, liquidity, and security in attracting investors.

Comparison to Industry Standards

• The document does not provide specific comparisons to other Bitcoin ETFs or industry benchmarks.
• However, the report's focus on tracking the Fidelity Bitcoin Reference Rate and using a volume-weighted median price (VWMP) methodology suggests an effort to align with industry best practices for pricing and valuation.
• The report mentions that CFTC regulated bitcoin futures represented between $1.0 billion and $11.84 billion in notional trading volume on Chicago Mercantile Exchange on a daily basis and notional volume was never below $4.33 billion and represented over $23.63 billion in open interest for the entirety of the period.

Related Party Transactions

• The Trust pays the Sponsor an annual unified fee of 0.25% of the Trusts Bitcoin Holdings.
• Fidelity Service Company, Inc., an affiliate of the Sponsor, serves as the Trusts administrator.
• Fidelity Digital Asset Services, LLC, an affiliate of the Sponsor, serves as the Trusts bitcoin custodian.
• Fidelity Distributors Company LLC, an affiliate of the Sponsor, is responsible for reviewing and approving the marketing materials prepared by the Sponsor.
• Fidelity Product Services LLC, an affiliate of the Sponsor, is responsible for the methodology and oversight of the Index.
• The Trust sold 500,000 Shares to FMR Capital, Inc., an affiliate of the Sponsor, for $40 per Share on January 9, 2024.
• On December 6, 2024, the Trust purchased all of the bitcoin assets of the Wise Origin Bitcoin Index Fund I, L.P., a Delaware limited partnership managed by the Sponsor, in exchange for 1,453,476 Shares of the Trust with a value of $129,377,662.

Stakeholder Impact

• Shareholders benefit from the Trust's exposure to bitcoin and its potential for capital appreciation.
• Authorized Participants play a key role in maintaining market liquidity and arbitrage opportunities.
• The Sponsor and its affiliates derive revenue from fees and services provided to the Trust.
• The Trust's operations contribute to the broader development of the digital asset market.

Next Steps

• The Trust will continue to operate in accordance with its investment objective and principal investment strategies.
• The Sponsor will monitor market conditions and regulatory developments to ensure the Trust's compliance and performance.
• The Trust will provide updated information to shareholders through periodic reports and filings with the SEC.

Key Dates