Ark 21Shares Bitcoin ETF Annual Review: Fiscal Year 2024

For investors seeking direct exposure to the world's leading digital asset, the ARK 21Shares Bitcoin ETF (ARKB) offers a regulated pathway. This summary details ARKB's annual performance and operational highlights for the fiscal year ended December 31, 2024, providing crucial insights into the Trust's structure, financial health, and key risks as reported in its SEC filing.

Business Overview

The ARK 21Shares Bitcoin ETF (ARKB), trading on the Cboe BZX Exchange, offers investors exposure to Bitcoin's price movements. Its primary goal is to closely track Bitcoin's performance, after accounting for operating expenses.

ARKB directly holds Bitcoin in secure cold storage. As a passive investment vehicle, ARKB does not actively trade Bitcoin to generate profits or try to beat the market. Instead, it buys or sells Bitcoin only when institutional investors create or redeem new shares (a process called "in-kind" creation/redemption), or to cover its operating expenses. The Trust benchmarks its performance against the CME CF Bitcoin Reference Rate (BRR).

Key Participants

Several key entities contribute to ARKB's operation:

• 21Shares US LLC: The Sponsor, responsible for managing and overseeing the Trust's operations.
• ARK Investment Management LLC: The Sub-Adviser, primarily assisting with marketing and investor outreach.
• Bitcoin Custodians: For secure Bitcoin storage, the Trust uses multiple reputable custodians, including Coinbase Custody Trust Company, BitGo Trust Company, and Anchorage Digital Bank, N.A., all employing cold storage solutions.
• The Bank of New York Mellon: Fulfills administrative roles, including serving as the cash custodian and transfer agent for the Trust.

Financial Performance (Results of Operations)

For the fiscal year ended December 31, 2024, Bitcoin's market price movements primarily drove the Trust's financial performance, offset by its operating expenses. As a passive investment vehicle, the Trust generates its "revenue" from the Sponsor Fee, calculated as a percentage of its net asset value (NAV).

The Trust incurred $5,832,114 in Sponsor Fees during the fiscal year. This amount reflects the initial fee waiver period, which ran from the Trust's launch on January 11, 2024, until its assets reached $1 billion in February 2024. If the full 0.21% fee had applied for the entire year on average assets, total fees would have been higher.

The Trust's net income or loss for the period reflects the Sponsor Fee and any "Additional Trust Expenses" (such as taxes, governmental charges, or significant litigation expenses) deducted from its assets. Because the Trust's primary objective is to track Bitcoin's performance net of expenses, its operational "profit" or "loss" directly results from its fee structure and any extraordinary expenses.

As this marks the Trust's first full fiscal year, year-over-year financial performance comparisons are not applicable. The Trust's Net Asset Value (NAV) per share closely tracked Bitcoin's performance, adjusted for deducted fees and expenses.

Risk Factors

Investing in ARKB involves several significant risks that investors should carefully consider:

• Bitcoin Price Volatility: Bitcoin's price is highly volatile, subject to rapid and unpredictable fluctuations that directly impact the ETF's value.
• Regulatory Risk: The regulatory landscape for Bitcoin and digital assets is evolving and uncertain. Adverse changes could significantly impact Bitcoin's value and the Trust's operations.
• Custody Risk: Even with multiple custodians and cold storage, the risk of Bitcoin loss or theft exists due to cybersecurity breaches, fraud, or operational failures at the custodians.
• Market Manipulation: The Bitcoin market is susceptible to manipulation, which could affect the benchmark price's accuracy and the Trust's value.
• Liquidity Risk: While Bitcoin is generally liquid, significant market disruptions or large redemptions could hinder the Trust's ability to liquidate Bitcoin efficiently.
• Operational Risks: Risks associated with the Trust's operations, including potential errors, system failures, or disruptions.
• Forks and Airdrops: A "fork" in the Bitcoin blockchain or an "airdrop" of new tokens could create complexities and potential tax implications for the Trust and its shareholders.
• Competition: The Trust faces intense competition from other spot Bitcoin ETFs, Bitcoin futures ETFs, and direct Bitcoin ownership, which could impact its market share and profitability.
• Tax Law Changes: Future changes in tax laws or interpretations could negatively affect Bitcoin's or the Trust's tax treatment.

Management's Discussion and Analysis of Financial Condition and Results of Operations

For the fiscal year ended December 31, 2024, Bitcoin's price performance and the ETF's operational mechanics predominantly influenced the Trust's financial condition and results of operations.

Financial Condition: As of December 31, 2024, the Trust's primary asset was its Bitcoin holdings, valued at over $5 billion ($5,034,361,000) and corresponding to 107.55 million shares outstanding. Liabilities were minimal, primarily consisting of accrued operating expenses. The Trust maintains a lean balance sheet, consistent with its passive investment objective.

Results of Operations: The Trust successfully tracked Bitcoin's performance, its underlying asset, net of expenses. ARKB shares generally traded in line with their Net Asset Value (NAV) per share, a testament to the efficient creation and redemption mechanism involving Authorized Participants. This mechanism continuously aligns the ETF's market price with the value of its underlying Bitcoin holdings.

The Trust's expenses for the period primarily consisted of the Sponsor Fee. The initial fee waiver significantly impacted total fees incurred during the early part of the year. Rapid growth in assets under management (AUM) to over $1 billion in February 2024 led to the waiver's early conclusion. Deducting these fees from the Trust's assets directly impacts the NAV per share, causing it to lag Bitcoin's gross performance.

Bitcoin market conditions during 2024 were dynamic, characterized by significant price movements. The Trust's performance directly mirrored these fluctuations. Authorized Participants actively created and redeemed shares throughout the year, reflecting investor demand and arbitrage opportunities. This activity helped maintain ARKB shares' liquidity in the secondary market.

Financial Health

The Trust maintains a strong financial position, characterized by the following:

• No Debt: The Trust operates without outstanding debt, funding its operations by deducting the Sponsor Fee from its assets.
• Assets: The Trust's assets consist almost entirely of Bitcoin held in secure cold storage by multiple custodians. While the cash custodian may hold a minimal amount of cash for immediate operational expenses, it does not form a significant component of the Trust's overall assets.
• Liquidity: The continuous creation and redemption process primarily provides the Trust's liquidity. Authorized Participants can create new shares by depositing Bitcoin with the Trust or redeem existing shares by receiving Bitcoin from it. This mechanism ensures ARKB shares' market price remains closely aligned with its Net Asset Value (NAV) and provides liquidity for investors. While underlying Bitcoin is generally considered a liquid asset, its liquidity can vary with market conditions.
• Liabilities: Liabilities are minimal, typically consisting of accrued operating expenses like the Sponsor Fee, which the Trust periodically pays by selling a small amount of Bitcoin.

Future Outlook

The Trust's future performance is inextricably linked to Bitcoin's market performance. As a passive investment vehicle, ARKB's strategy remains consistent: provide investors with exposure to Bitcoin's price movements by holding actual Bitcoin, net of its operating expenses. The Trust does not provide financial guidance or forecast Bitcoin's price.

The Sponsor and Sub-Adviser will continue to focus on maintaining efficient operations, ensuring secure Bitcoin custody, and adhering to regulatory requirements. ARKB's long-term success will depend on Bitcoin's continued adoption, its price stability, and the Trust's ability to maintain a competitive expense ratio within the evolving digital asset investment product landscape.

Competitive Position

The market for Bitcoin investment products, particularly spot Bitcoin ETFs, became highly competitive following the approval and launch of several such products in early 2024. ARKB operates within this competitive environment, alongside other ETFs offering direct Bitcoin exposure.

The Trust's competitive advantages include its fee structure (0.21% Sponsor Fee, with an initial waiver period), its multi-custodian model for enhanced security, and the established reputations of its Sponsor (21Shares US LLC) and Sub-Adviser (ARK Investment Management LLC). Its ability to attract and retain assets will depend on these factors, as well as its operational reliability and effective marketing to investors seeking regulated Bitcoin exposure. The Trust acknowledges that intense competition could impact its market share and asset growth.