Bitwise Chainlink ETF Annual Report - How They Did This Year

Let's explore the Bitwise Chainlink ETF (CLNK) and its year. You'll find it as "CLNK" on the stock market. This report covers the year ending December 31, 2025.

What is the Bitwise Chainlink ETF (CLNK) all about?

CLNK offers a simple way to invest in Chainlink, a digital asset. You don't buy or hold Chainlink directly. It trades like a regular stock on NYSE Arca, Inc.

Its main goal: It aims to reflect Chainlink's value, after covering costs. If Chainlink's price rises, the ETF's value should generally rise too. The opposite is also true.

How it works:

• It holds actual Chainlink.
• Its value is calculated daily. It uses the "CME CF Chainlink–Dollar Reference Rate." This official rate reflects Chainlink's U.S. dollar price once daily. It comes from aggregated trading on major Chainlink exchanges.
• Bitwise Investment Advisers, LLC manages the fund (the "Sponsor"). They have strict internal policies. An insider trading policy ensures fair practices. It also prevents misuse of private information.
• This is a "passively managed" fund. The Sponsor doesn't try to time the market. They simply hold Chainlink in proportion to the fund's assets. This aims to track Chainlink's price performance.
• The ETF uses no borrowed money (leverage). This avoids amplified losses during market downturns. It adds to stability.

Who's keeping the Chainlink safe?

Coinbase Custody Trust Company, LLC is the "custodian." They securely store the ETF's Chainlink. Important: Coinbase Custody is not FDIC insured. The FDIC is a government agency that insures bank accounts. If the custodian fails, digital assets lack this protection. They do carry private insurance. This typically covers theft or loss from cyber breaches or employee misconduct. Coverage limits and terms apply.

How do shares get created and redeemed?

Only special financial firms can create or redeem shares directly. We call them "Authorized Participants." They do this in large blocks of 10,000 shares, called a "Basket." This process helps keep the ETF's market price aligned with its Net Asset Value (NAV).

• To create new shares: Firms can give the ETF Chainlink directly ("in-kind"). Or, they can give cash for the ETF to buy Chainlink. In-kind creations are usually more tax-efficient for the ETF.
• To redeem shares: The ETF can give firms Chainlink directly. Or, it can sell Chainlink and give them cash. This lets the ETF adjust its holdings based on investor demand.

The ETF sometimes buys or sells Chainlink itself. This happens for cash creations, redemptions, or to pay expenses. It works with approved partners like Nonco LLC and Virtu Americas LLC. These partners offer good liquidity and competitive prices. Sometimes, Coinbase Inc. acts as an agent for these trades. It can even borrow Chainlink or cash temporarily from Coinbase Credit, Inc. This makes transactions smoother and ensures timely settlement. It also avoids disrupting market prices.

What's new and what's next?

• Future Staking Plans: This is an interesting development! Currently, the ETF does not "stake" its Chainlink. But it plans to start in the future. Staking means locking up LINK tokens. This helps secure the Chainlink network and provides data. The ETF would contribute to decentralized oracle services. These are vital for smart contracts to get real-world data. In return, the ETF would earn more Chainlink tokens as rewards. This increases its holdings without needing new money. This could boost the ETF's total returns. It could also grow its Chainlink exposure over time. However, staking brings new risks. These include 'slashing' penalties for validator errors. There are also smart contract risks with the staking protocol. Staked assets can also become temporarily unavailable.

• New "Clawback" Policy for Executive Pay: Bitwise, the company behind the ETF, adopted a new policy on January 4, 2024. It focuses on accountability. This "Recovery Policy" (or "clawback policy") allows Bitwise to reclaim bonuses. This happens if financial report mistakes lead to a restatement (re-doing the books). It applies to incentive pay executives shouldn't have received. The NYSE requires this policy. It's a good sign for investors. It shows Bitwise's commitment to strong corporate governance. It protects shareholder interests. Executives are held accountable for accurate financial reporting. Currently, Bitwise officers don't get incentive pay. So, this is a proactive future measure. It aligns with best practices for public companies.

What are the potential risks?

Like any investment, risks exist. Investors must understand them:

• Overall economic and market conditions: Digital assets, including Chainlink, can be highly volatile. Broader economic trends often influence them. Investor sentiment towards risk and global financial stability also play a role. A downturn in traditional markets or a 'risk-off' environment could significantly drop Chainlink's price. This would also affect the ETF.
• Changes in Chainlink technology or other digital assets: Chainlink's technology constantly evolves. Risks include vulnerabilities in its smart contracts or oracle systems. Competition from other oracle solutions is also a risk. Major protocol upgrades, like hard forks, could impact its stability, adoption, or value. The digital asset ecosystem is interconnected. Issues with other major digital assets could affect Chainlink's price.
• New laws or regulations (especially concerning taxes): Digital asset regulations are still developing and change quickly. New laws or rules, local or international, could impact Chainlink and the ETF. This includes legality, trading, or taxation. Digital assets might be reclassified as securities. Stricter anti-money laundering (AML) or know-your-customer (KYC) rules could emerge. Adverse tax treatments, like changes to capital gains, are possible. All these could harm the ETF's value or operations.
• Global events like pandemics: Unforeseen global events create uncertainty and volatility. These include public health crises, conflicts, or natural disasters. Such events can disrupt supply chains and economic growth. They can also cause widespread investor panic. This could lead to sharp, unpredictable declines in Chainlink's value.
• Custody Risk: Coinbase Custody Trust Company, LLC is a reputable custodian. Private insurance is also in place. Still, risks remain. The ETF's Chainlink holdings could be lost, stolen, or inaccessible. This could happen due to cyberattacks, breaches, or operational failures. Private insurance might not cover all potential losses.
• Liquidity Risk: Chainlink is usually easy to buy and sell (liquid). But extreme market conditions, rules, or network events could reduce its liquidity. This would make it hard for the ETF to buy or sell Chainlink efficiently. This affects creations, redemptions, or expense payments. It could cause the ETF's market price to differ from its Net Asset Value (NAV).
• Valuation Risk: Chainlink's value uses the CME CF Chainlink–Dollar Reference Rate. Yet, it can be very volatile. Market manipulation or differences across trading platforms are possible. This makes accurately pricing the ETF's assets challenging.
• Cybersecurity Risk: Chainlink is digital. The ETF's supporting infrastructure, like trading platforms, is too. Both are vulnerable to cyberattacks, hacking, and malicious activities. This could cause financial losses or operational problems.
• Regulatory Uncertainty: Digital asset regulations are always changing and often unpredictable. This creates ongoing risk. Future rules could restrict the ETF's operations. They might affect Chainlink demand. They could even lead to the ETF's delisting.
• Staking Risk (once implemented): If the ETF stakes Chainlink, new risks arise. These include 'slashing' penalties. This means losing some staked LINK for validator errors or downtime. Smart contract vulnerabilities in the staking protocol are also a risk. Staked assets could become temporarily unavailable. This would affect the ETF's ability to meet redemption requests.

The full report details these risks further. Always review it if you consider investing.

In a nutshell:

The Bitwise Chainlink ETF offers a simple way to gain Chainlink exposure. You can trade it through a traditional brokerage account on NYSE Arca, Inc. It's passively managed and holds actual Chainlink. Its goal is to track the CME CF Chainlink–Dollar Reference Rate. The fund explores staking its Chainlink in the future. This could earn more tokens and boost returns. However, it also brings new risks. Bitwise, the manager, has strong internal policies. A new "clawback" policy for executive pay began January 4, 2024. This ensures ethical operations and accountability. It clearly outlines the operational structure, explains share creation/redemption, and highlights all risks in digital asset investments and ETF operations.