Bitwise 10 Crypto Index Fund

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with U.S. GAAP. The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those set forth under Part II, Item 1A. Risk Factors in this Quarterly Report.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Form 10-Q, which have been prepared in accordance with U.S. GAAP. The following discussion may contain forward-looking statements based on current expectations that involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under “Part II. Item 1A. Risk Factors,” “Statement Regarding Forward-Looking Statements” or in other sections of this Form 10-Q.

Previous wording

In furtherance of this objective, the activities of the Trust include (i) issuing Shares in exchange for subscriptions, (ii) selling or buying Portfolio Crypto Assets in connection with monthly rebalancing, (iii) selling Portfolio Crypto Assets as necessary to cover the Management Fee (as defined below) and/or any Organizational Expenses (as defined below), (iv) causing the Sponsor to sell Portfolio Crypto Assets upon any potential future termination of the Trust, and (v) engaging in all administrative and security procedures necessary to accomplish such activities in accordance with the provisions of the Trust Agreement, and the Custodian Agreement (as defined below).

Current wording

In furtherance of this objective, the activities of the Trust include (i) issuing Shares in exchange for subscriptions, (ii) selling or buying Portfolio Crypto Assets in connection with monthly rebalancing, (iii) selling Portfolio Crypto Assets as necessary to cover the Management Fee (as defined below) and/or any Organizational Expenses (as defined below), (iv) causing the Sponsor to sell Portfolio Crypto Assets upon any potential future termination of the Trust, and (v) engaging in all administrative and security procedures necessary to accomplish such activities in accordance with the provisions of the Trust Agreement of Bitwise 10 Crypto Index Fund (the "Trust Agreement"), and the Custodian Agreement with the Custodian(the “Custodian Agreement").

Previous wording

The Trust’s principal investment objective is to invest in a Portfolio of Crypto Assets that tracks the Bitwise 10 Large Cap Crypto Index (the "Index") as closely as possible with certain exceptions determined by the Sponsor in its sole discretion. In addition, in the event the Portfolio Crypto Assets being held by the Trust present opportunities to generate returns in excess of the Index (for example, Airdrops, Emissions, forks, or similar network events) the Sponsor may also pursue these incidental opportunities on behalf of the Trust as part of the investment objective if in its sole discretion the Sponsor deems such activities to be possible and prudent. The Trust believes that it has met its principal investment objective. As of March 31, 2024, there was a correlation of 99.xx% between the Portfolio Crypto Assets and the assets included in the Index. The Trust is aware that the market price of the Trust’s shares may deviate from the net asset value (“NAV”) of the shares, and the market price may at times be significantly above or below the shares’ NAV. The NAV of the Trust is calculated by summing the assets and liabilities and the NAV Per Share is calculated by dividing the total NAV by the shares outstanding. However, the Trust believes that any such deviation does not affect the Trust’s principal investment objective, as the Trust does not maintain or promote any business objectives related to the market trading price of its shares. Furthermore, under Regulation M, the Trust as issuer of the Shares is not permitted to take any actions that would seek to reconcile the NAV of the Shares and the market price of the Shares, and the Trust would not undertake business objectives that it was legally restricted from achieving.

Current wording

The Trust’s principal investment objective is to invest in a Portfolio of Crypto Assets that tracks the Bitwise 10 Large Cap Crypto Index (the "Index") as closely as possible with certain exceptions determined by the Sponsor in its sole discretion. In addition, in the event the Portfolio Crypto Assets being held by the Trust present opportunities to generate returns in excess of the Index (for example, Airdrops, Emissions, forks, or similar network events) the Sponsor may also pursue these incidental opportunities on behalf of the Trust as part of the investment objective if in its sole discretion the Sponsor deems such activities to be possible and prudent. The Trust believes that it has met its principal investment objective. As of June 30, 2024, there was a correlation of 99.99% between the Portfolio Crypto Assets and the assets included in the Index. The Trust is aware that the market price of the Trust’s shares may deviate from the net asset value (“NAV”) of the shares, and the market price may at times be significantly above or below the shares’ NAV. The NAV of the Trust is calculated by summing the assets and liabilities and the NAV Per Share is calculated by dividing the total NAV by the shares outstanding. However, the Trust believes that any such deviation does not affect the Trust’s principal investment objective, as the Trust does not maintain or promote any business objectives related to the market trading price of its shares. Furthermore, under Regulation M, the Trust as issuer of the Shares is not permitted to take any actions that would seek to reconcile the NAV of the Shares and the market price of the Shares, and the Trust would not undertake business objectives that it was legally restricted from achieving.

Previous wording

The following charts show the percentage of Premium/(Discount) of the Shares as quoted on OTCQX and the Trust’s NAV and a comparison of the NAV of the Trust vs the market price as quoted on OTCQX.

Current wording

The following charts show the percentage of Premium/(Discount) of the Shares as quoted on OTCQX and the Trust’s NAV and a comparison of the NAV of the Trust vs the market price as quoted on OTCQX for the period December 10, 2020 to June 30, 2024.

Previous wording

From December 9, 2020 to March 31, 2024, the Shares of BITW traded at an average discount, based on closing prices at 4:00 pm ET, and estimated, unaudited, NAV Per Share of 14.40%. During that same period, the highest premium was 649.38% on December 16, 2020, and the lowest premium was 0.27% on August 4, 2021. During that same period, the highest discount was 67.80% on December 28, 2022, and the lowest discount was 0.09% on September 24, 2021. Given the lack of an ongoing redemption program and the holding period under Rule 144, there is no arbitrage mechanism to keep the Shares closely linked to the value of the Trust’s underlying holdings that may continue to have an adverse impact on investments in the Shares.

Current wording

From December 10, 2020 to June 30, 2024, the Shares of BITW traded at an average discount of 15.71%, based on closing prices at 4:00 pm ET, and estimated, unaudited, NAV Per Share. During that same period, the highest premium was 649.38% on December 16, 2020, and the lowest premium was 0.27% on August 4, 2021. During that same period, the highest discount was 67.80% on December 28, 2022, and the lowest discount was 0.09% on September 24, 2021. Given the lack of an ongoing redemption program and the holding period under Rule 144, there is no arbitrage mechanism to keep the Shares closely linked to the value of the Trust’s underlying holdings that may continue to have an adverse impact on investments in the Shares.

Previous wording

The following chart shows a comparison of the cumulative returns of the Index compared to the NAV of the Trust.

Current wording

The following chart shows a comparison of the cumulative returns of the Index compared to the NAV of the Trust since inception to the period ended June 30, 2024.

Previous wording

Financial Information for the Three Months ended March 31, 2024 and 2023

Current wording

Financial Information for the Three and Six Months ended June 30, 2024 and 2023

Previous wording

The following table sets forth statements of operations data for the three months ended March 31, 2024 and 2023.

Current wording

The following table sets forth statements of operations data for the three and six months ended June 30, 2024 and 2023.

Previous wording

Comparison of the three-month periods ended March 31, 2024 and 2023

Current wording

Comparison of the six-month periods ended June 30, 2024 and 2023

Previous wording

The Sponsor charges the Trust a Management Fee payable monthly, in arrears, in an amount equal to 2.5% per annum (1/12th of 2.5% per month) of the net asset value of the Trust’s assets at the end of each month. Management fees for the three months ended March 31, 2024 were $5,878,198 compared to management fees for the three months ended March 31, 2023 of $2,842,302. These changes were due to an increase in the Trust’s net asset value due to an increase in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).

Current wording

June 30, 2024 were $12,008,661 compared to management fees for the six months ended June 30, 2023 of $6,024,544. These changes were due to an increase in the Trust’s net asset value due to an increase in the value of the Portfolio Crypto Assets held by the Trust as a result of the fair market value of the Assets (see “Schedules of Investments” below).

Previous wording

Net realized gain from Crypto Assets for the three months ended March 31, 2024 was $1,516,665 compared to net realized loss from Crypto Assets for the three months ended March 31, 2023 of $1,939,233. These changes were due to fluctuations in the value of the Portfolio Crypto Assets sold during the respective period.

Current wording

Net realized gain from Crypto Assets for the six months ended June 30, 2024 was $1,020,735 compared to net realized loss from Crypto Assets for the six months ended June 30, 2023 of $2,159,366. These changes were due to fluctuations in the value of the Portfolio Crypto Assets.

Previous wording

For the three-month period ended March 31, 2024, the Trust recorded net realized gains from sales of Bitcoin and Ethereum of approximately $1,505,603 and $353,347, respectively, among the gains and losses realized in smaller amounts from the sale of other Portfolio Crypto Assets. These sales were made as a result of rebalancing activity and sales of Portfolio Crypto Assets to raise money to pay the management fee.

Current wording

For the six-month period ended June 30, 2024, the Trust recorded net realized gains from sales of Bitcoin and Ethereum of $4,507,996 and $2,938,304, respectively, among the gains and losses realized in smaller amounts from the sale of other Portfolio Crypto Assets. These sales were made as a result of rebalancing activity and sales of Portfolio Crypto Assets to raise money to pay the management fee.

Previous wording

For the three-month period ended March 31, 2023, the Trust recorded net realized losses from sales of Bitcoin and Cardano of approximately $842,260 and $500,572, respectively, among the gains and losses realized in smaller amounts from the sale of other Portfolio Crypto Assets. These sales were made as a result of rebalancing activity and sales of Portfolio Crypto Assets to raise money to pay the management fee.

Current wording

For the six-month period ended June 30, 2023, the Trust recorded net realized losses from sales of Bitcoin and Cardano of $930,621 and $735,998, respectively, among the gains and losses realized in smaller amounts from the sale of other Portfolio Crypto Assets. These sales were made as a result of rebalancing activity and sales of Portfolio Crypto Assets to raise money to pay the management fee.

Previous wording

Net change in unrealized appreciation from Crypto Assets for the three months ended March 31, 2024 was $426,245,688 compared to net change in unrealized appreciation from Crypto Assets for three months ended March 31, 2023 of $201,060,657. The primary factor for the change was related to an increase in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).

Current wording

Net change in unrealized appreciation from Crypto Assets for the six months ended June 30, 2024 was $258,794,961 compared to net change in unrealized appreciation from Crypto Assets for six months ended June 30, 2023 of $223,022,103. The primary factor for the change was related to an increase in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).

Previous wording

For the three month period ended March 31, 2024 the Trust recorded net unrealized appreciation from Crypto Assets of Bitcoin and Ethereum of approximately $314,221,201 and $84,374,898, respectively, among the unrealized appreciation and depreciation in smaller amounts of other Portfolio Crypto Assets.

Current wording

For the six-month period ended June 30, 2024 the Trust recorded net unrealized appreciation from Crypto Assets of Bitcoin and Ethereum of $192,466,150 and $69,542,641, respectively, among the unrealized gains and losses in smaller amounts of other Portfolio Crypto Assets.

Previous wording

For the three month period ended March 31, 2023 the Trust recorded net unrealized appreciation from Crypto Assets of Bitcoin and Ethereum of approximately $141,292,863 and $46,513,143, respectively, among the unrealized appreciation and depreciation in smaller amounts of other Portfolio Crypto Assets.

Current wording

For the six-month period ended June 30, 2023 the Trust recorded net unrealized appreciation from Crypto Assets of Bitcoin and Ethereum of $163,480,319 and $53,071,338, respectively, among the unrealized gains and losses in smaller amounts of other Portfolio Crypto Assets.

Previous wording

For the three month period ended March 31, 2024, the Trust recorded a net increase in net assets resulting from operations of $421,884,128, compared to a net increase in net assets resulting from operations of $196,279,122 for the period ended March 31, 2023. The primary factor that impacted 2024 net increase (decrease) in net assets resulting from operations compared to 2023 net increase (decrease) in net assets resulting from operations was an increase in net realized gain and change in unrealized appreciation on investments with a net gain of $427,762,353 for the three month period in 2024 compared to a net gain of $199,121,424 for the three month period in 2023. The primary factor for the change was an increase in the fair value of the Portfolio Crypto Assets held by the Trust (see “Schedules of Investments” below).

Current wording

For the six-month period ended June 30, 2024, the Trust recorded a net increase in net assets resulting from operations of $247,806,984, compared to a net increase in net assets resulting from operations of $214,904,426 for the six-month period ended June 30, 2023. The primary factor that impacted 2024 net increase (decrease) in net assets resulting from operations compared to 2023 net increase (decrease) in net assets resulting from operations was a decrease in net realized loss and change in unrealized gain on investments with a net gain of $259,815,696 in 2024 compared to a net gain of $220,862,737 in 2023. The primary factor for the change was an increase in the value of the Portfolio Crypto Assets held by the Trust as a result of the fair market value of the Assets (see “Schedules of Investments” below).

Previous wording

As described above, in exchange for the Management Fee, the Sponsor is responsible for payment of almost all of the expenses incurred by the Trust. As a result, the only material ordinary expense of the Trust during the periods covered by this Registration Statement was the Management Fee. The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs.

Current wording

As described under the heading “Management Fee” above, in exchange for the Management Fee, the Sponsor is responsible for payment of almost all of the expenses incurred by the Trust. As a result, the only material ordinary expense of the Trust during the periods covered by this Registration Statement was the Management Fee. The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. See Part I, Item 2 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Fee” for additional discussion of the Trust’s fees and expenses.

Previous wording

As described in the Risk Factors set out in our Form 10-K filed with the SEC on March 1, 2024, the prices of the various Portfolio Crypto Assets held by the Trust are subject to extreme volatility. This volatility had a significant impact on the value of the Portfolio Crypto Assets for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 and the year ended December 31, 2023.

Current wording

As described in the Risk Factors set out in our Form 10-K filed with the SEC on March 1, 2024, the prices of the various Portfolio Crypto Assets held by the Trust are subject to extreme volatility. This volatility had a significant impact on the value of the Portfolio Crypto Assets for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 and the year ended December 31, 2023.

Previous wording

As shown below in the “Schedules of Investments,” the increase in total investments in Crypto Assets from January 1, 2024 to March 31, 2024 was due primarily to an increase in the value of the Portfolio Crypto Assets and to a lesser extent, the reinvestment of assets resulting from the December 31, 2023 Trust rebalance.

Current wording

As shown below in the “Schedules of Investments,” the increase in total investments in Crypto Assets from January 1, 2024 to June 30, 2024 was due primarily to an increase in the value of the Portfolio Crypto Assets and to a lesser extent, by the sale of various Portfolio Crypto Assets to pay the Management Fee.

Previous wording

Three Months Ended March 31, 2024 and the Twelve Months Ended December 31, 2023

Current wording

Six Months Ended June 30, 2024 and the Twelve Months Ended December 31, 2023

Previous wording

As of March 31, 2024, Bitcoin represented 68.77% of the total Portfolio Crypto Assets held by the Trust, and Ethereum represented 21.25%, while the remaining 9.98% of the Portfolio Crypto Assets were comprised of Solana, Ripple, Cardano, Avalanche, Polkadot, Chainlink, Polygon, and Litecoin.

Current wording

As of June 30, 2024, Bitcoin represented 68.26% of the total Portfolio Crypto Assets held by the Trust, and Ethereum represented 23.48%, while the remaining 8.26% of the Portfolio Crypto Assets were comprised of Solana, Ripple, Cardano, Avalanche, Polkadot, Chainlink, Bitcoin Cash, and NEAR Protocol.

Previous wording

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Current wording

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. There were no material estimates involving a significant level of estimation uncertainty that had or are reasonably likely to have had a material impact on the Trust’s financial condition used in the preparation of the financial statements. In addition, please refer to Note 2 to the Financial Statements included in this Quarterly Report for further discussion of the Trust’s accounting policies.

Previous wording

Effective August 31, 2021, the process that the Sponsor developed for identifying a principal market, as described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, which outlines the application of fair value accounting, was to begin by identifying publicly available, well established and reputable Crypto Asset exchanges selected by the Sponsor and its affiliates in their sole discretion, and then calculating, on each valuation period, the highest volume exchange during the 60 minutes prior to 4:00 pm ET for each asset. In evaluating the markets that could be considered principal markets, the Trust considered whether or not the specific markets were accessible to the Trust, either directly or through an intermediary, at the end of each period.

Current wording

The process that the Sponsor developed for identifying a principal market (the "Principal Market"), as described in FASB ASC 820-10, which outlines the application of fair value accounting, was to begin by identifying publicly available, well established and reputable Crypto Asset exchanges selected by the Sponsor and its affiliates in their sole discretion, including, but not limited to, Binance, Bitfinex, Bitflyer, Bitstamp, Coinbase, Crypto.com, Gate.io, Gemini, HitBTC, Huobi, itBit, Kraken, KuCoin, LMAX, MEXC Global, OKX and Poloniex,, and then calculating, on each valuation period, the highest volume exchange during the 60 minutes prior to 4:00 pm ET for each asset (the "Principal Market Price"). In evaluating the markets that could be considered principal markets, the Trust considered whether or not the specific markets were accessible to the Trust, either directly or through an intermediary, at the end of each period.

Previous wording

The following provides an overview of the Principal Market and the Principal Market Prices for Portfolio Crypto Assets that comprised the majority of the Trust’s assets for the three month period ended March 31, 2024.

Current wording

The following provides an overview of the Principal Market and the Principal Market Prices for Portfolio Crypto Assets that comprised the majority of the Trust’s assets for the six month period ended June 30, 2024.

Previous wording

The Trust intermittently receives Airdrops of new Crypto Assets. The use of Airdrops is generally to promote the launch and use of new Crypto Assets by providing a small amount of the new Crypto Assets to the private wallets or exchange accounts of holders of existing related Crypto Assets. Airdropped Crypto Assets can have substantially different Blockchain technology that has no relation to any existing Crypto Asset, and many Airdrops may be without value. The Trust will only record receipt of airdropped Crypto Assets if when received, the airdropped Crypto Assets have value. Crypto Assets received from Airdrops have no cost basis and the Trust recognizes other income equal to the fair value of the new Crypto Asset received. There were no Airdrops recognized or unrecognized during the three month period ended March 31, 2024.

Current wording

The Trust intermittently receives Airdrops of new Crypto Assets. The use of Airdrops is generally to promote the launch and use of new Crypto Assets by providing a small amount of the new Crypto Assets to the private wallets or exchange accounts of holders of existing related Crypto Assets. Airdropped Crypto Assets can have substantially different Blockchain technology that has no relation to any existing Crypto Asset, and many Airdrops may be without value. The Trust will only record receipt of Airdropped Crypto Assets if when received, the Airdropped Crypto Assets have value. Crypto Assets received from Airdrops have no cost basis and the Trust recognizes other income equal to the fair value of the new Crypto Asset received.

Previous wording

The Trust is classified as a partnership for U.S. federal income tax purposes. The Trust does not record a provision for U.S. federal, U.S. state or local income taxes because the Shareholders report their share of the Trust’s income or loss on their income tax returns. The Trust files an income tax return in the U.S. federal jurisdiction and may file income tax returns in various U.S. states and foreign jurisdictions.

Current wording

The Trust is classified as a partnership for U.S. federal income tax purposes. The Trust does not record a provision for U.S. federal, U.S. state or local income taxes because the Shareholders report their share of the Trust’s income or loss on their income tax returns.

Previous wording

Crypto Assets are loosely regulated and there is no central marketplace for currency exchange. Supply is determined by a computer code, not by a central bank, and prices have been extremely volatile. Crypto Asset exchanges have been closed due to fraud, failure or security breaches. Any of the Trust’s assets that reside on an exchange that shuts down may be lost. At March 31, 2024, Crypto Assets of approximately $7,753,989 and no cash reside on exchanges. At December 31, 2023, the Trust had a $2,770,000 receivable from Crypto Assets sold and approximately $900 in cash in the Trust bank accounts.

Current wording

Crypto Assets are loosely regulated and there is no central marketplace for currency exchange. Supply is determined by a computer code, not by a central bank, and prices have been extremely volatile. Crypto Asset exchanges have been closed due to fraud, failure or security breaches. Any of the Trust’s assets that reside on an exchange that shuts down may be lost. At June 30, 2024, Crypto Assets of approximately $155,100 and cash of approximately $319,600 resided on exchanges. At December 31, 2023, the Trust had a $2,770,000 receivable from Crypto Assets sold and Crypto Assets of approximately $1,270,260 resided on exchanges.

Previous wording

As Crypto Assets have grown in popularity and market size, various countries and jurisdictions have begun to develop regulations governing the Crypto Assets industry. To the extent that future regulatory actions or policies limit the ability to exchange Crypto Assets or utilize them for payments, the demand for Crypto Assets will be reduced. Furthermore, regulatory actions may limit the ability of end-users to convert Crypto Assets into fiat currency (e.g., U.S. dollars) or use Crypto Assets to pay for goods and services. Such regulatory actions or policies would result in a reduction of demand, and in turn, a decline in the underlying Crypto Asset unit prices.

Current wording

As Crypto Assets have grown in popularity and market size, various countries and jurisdictions have begun to develop regulations governing the Crypto Assets industry. To the extent that future regulatory actions or policies limit the ability to exchange Crypto Assets or utilize them for payments, the demand for Crypto Assets will be reduced. Furthermore, regulatory actions may limit the ability of end-users to convert Crypto Assets into fiat currency (e.g., U.S. dollars) or use Crypto Assets to pay for goods and services. Such regulatory actions or policies would result in a reduction of demand, and in turn, a decline in the underlying Crypto Asset unit prices. The effect of any future regulatory change on the Trust or Crypto Assets in general is impossible to predict, but such change could be substantial and adverse to the Trust and the value of the Trust’s investments in Crypto Assets.

Previous wording

The Custodian serves as the Trust’s Custodian for Crypto Assets for which qualified custody is available. The Custodian is subject to change in the sole discretion of the Sponsor. At March 31, 2024 and December 31, 2023, Crypto Assets of approximately $1,117,580,262 and $698,528,691 are held by the Custodian, respectively.

Current wording

The Custodian serves as the Trust’s Custodian for Crypto Assets for which qualified custody is available. The Custodian is subject to change in the sole discretion of the Sponsor. At June 30, 2024 and December 31, 2023, Crypto Assets of approximately $950,419,100 and $698,528,691 were held by the Custodian, respectively.