Fidelity Wise Origin Bitcoin Fund

Your Essential Guide to the Fidelity Wise Origin Bitcoin Fund (FBTC)

1. Business Overview

What is the Fidelity Wise Origin Bitcoin Fund (FBTC)?

FBTC, an exchange-traded fund (ETF), offers investors a straightforward way to gain exposure to Bitcoin's price movements without directly owning or managing the digital asset.

• Direct Bitcoin Exposure: When you buy FBTC shares, you invest in a fund that holds actual Bitcoin. The fund's primary objective is to reflect Bitcoin's performance, net of operating expenses, as measured by its reference rate.
• Easy to Trade: FBTC shares trade on the Cboe BZX Exchange under the ticker symbol FBTC, just like stocks or other ETFs in your standard brokerage account.
• New to the Market: The fund commenced operations on January 11, 2024, giving it a very limited operating history.
• Significant Scale: As of December 31, 2024 (the reporting period for this 10-K filing), the fund held a substantial amount of Bitcoin, with a market value exceeding $21.5 billion and over 214 million shares outstanding.

How FBTC Works: Tracking Bitcoin's Value

FBTC passively tracks the price of Bitcoin.

• The Fidelity Bitcoin Reference Rate (Index): The fund values its Bitcoin holdings daily using the "Fidelity Bitcoin Reference Rate" (the "Index"). This Index calculates every 15 seconds by aggregating real-time prices from a selection of major, regulated spot Bitcoin exchanges (such as Bitstamp, Coinbase, Kraken, LMAX Digital, and itBit). This methodology provides a fair and representative global price for Bitcoin.
• Passive Management: Unlike actively managed funds, FBTC does not attempt to "beat" the market or make discretionary trading decisions. Its strategy is simply to hold Bitcoin and track its price, net of fees.
• Creation and Redemption Mechanism: To align FBTC's market price with its underlying Bitcoin value (Net Asset Value or NAV), the fund uses a "creation and redemption" process. Authorized Participants (APs), typically large financial institutions, create new FBTC shares by delivering Bitcoin to the fund or redeem existing shares by receiving Bitcoin from the fund. This in-kind mechanism helps arbitrage away significant premiums or discounts between the share price and NAV.
• Secure Custody: Fidelity Digital Assets (FDA), a trusted entity within the Fidelity ecosystem, acts as the custodian for the fund's Bitcoin. FDA employs robust security measures, including primarily cold storage (offline storage of private keys), multi-signature authorization, and advanced cybersecurity protocols to protect the digital assets from theft or loss.

2. Financial Performance

Understanding the costs associated with FBTC and its initial financial results is crucial for investors.

• Expense Ratio: The fund charges an annual management fee, known as the expense ratio, of 0.25%. This fee deducts from the fund's assets and impacts your overall returns. For example, for every $10,000 invested, you would pay $25 per year in fees.
• Initial Operating Results: Launched on January 11, 2024, the fund's initial 10-K filing covers a limited operating period from inception through December 31, 2024.

3. Risk Factors

Investing in FBTC carries significant risks, primarily due to the inherent volatility and evolving nature of Bitcoin and the digital asset market.

1. Extreme Bitcoin Volatility: Bitcoin's price is highly speculative and can experience rapid, substantial fluctuations, both up and down. This extreme volatility means your investment in FBTC could lose significant value quickly.
2. Regulatory Uncertainty: The regulatory landscape for digital assets like Bitcoin is still developing globally. New laws, restrictions, or even outright bans could be imposed, which would likely have a severe negative impact on Bitcoin's value and, consequently, FBTC's share price.
3. Custody and Security Risks: While Fidelity Digital Assets employs advanced security measures (cold storage, multi-signature authorization), the fund cannot entirely eliminate the risk of loss due to hacking, theft, or operational errors (e.g., lost private keys). Bitcoin transactions are generally irreversible, meaning lost or stolen Bitcoin is often unrecoverable.
4. Tracking Error and Price Disconnect: Despite the creation/redemption mechanism, FBTC shares' market price on the exchange may not always perfectly match the fund's Net Asset Value (NAV). This can lead to shares trading at a premium (above NAV) or a discount (below NAV) due to factors like market supply and demand, trading halts, or operational issues with Authorized Participants.
5. Index Methodology Risk: The Fidelity Bitcoin Reference Rate, while robust, relies on data from a limited number of exchanges. This index may not always perfectly reflect Bitcoin's true global price or could be susceptible to manipulation, which could affect the fund's valuation and share price.
6. Market and Liquidity Risk: The Bitcoin market can be less liquid than traditional financial markets, especially for large transactions. This could impact the fund's ability to acquire or dispose of Bitcoin efficiently, potentially affecting its tracking performance.

4. Financial Health

The fund's financial health is primarily characterized by its asset composition and the absence of traditional debt.

• Assets: The vast majority of the fund's assets consist of Bitcoin, held in secure custody by Fidelity Digital Assets. A minimal amount of cash may be held to cover operational expenses or for short-term liquidity needs. As of December 31, 2024, the fund reported substantial assets under management, reflecting significant investor interest since its launch.
• Liabilities: The fund's liabilities are typically limited to accrued operating expenses, such as management fees, custody fees, administrative fees, and other operational costs that are incurred but not yet paid. The fund does not engage in borrowing or incur long-term debt.
• Net Assets: The fund's net assets represent the total value of its assets minus its liabilities, which directly corresponds to the aggregate Net Asset Value (NAV) of its outstanding shares.
• Liquidity: The fund maintains liquidity primarily through its holdings of Bitcoin, which trades on various exchanges, and the efficient creation and redemption mechanism with Authorized Participants. This mechanism allows for the continuous adjustment of the fund's share supply to meet market demand, helping to ensure that the market price of FBTC shares remains closely aligned with its underlying NAV.

5. Future Outlook

The future outlook for the Fidelity Wise Origin Bitcoin Fund is intrinsically linked to the evolving landscape of the digital asset market and Bitcoin's performance.

• Continued Passive Strategy: The fund intends to continue its passive investment strategy, aiming to track Bitcoin's performance, net of expenses, as measured by the Fidelity Bitcoin Reference Rate. Management anticipates no changes to this core strategy.
• Market Volatility: Management expects Bitcoin's price to remain highly volatile, influenced by factors such as global economic conditions, regulatory developments, technological advancements, and investor sentiment. The fund's performance will directly reflect these fluctuations.
• Regulatory Environment: The regulatory framework for digital assets remains dynamic and uncertain. Future legislative or regulatory actions, both domestically and internationally, could significantly impact the Bitcoin market and, consequently, the fund's operations and value. The fund will continue to monitor these developments closely.
• Competition: The market for spot Bitcoin ETFs is competitive, with several similar products having launched. The fund anticipates continued competition based on factors such as expense ratios, brand recognition, and operational efficiency.
• Operational Integrity: Fidelity remains committed to maintaining robust operational procedures and secure custody solutions through Fidelity Digital Assets to protect the fund's assets and ensure reliable tracking of Bitcoin's price.

6. Competitive Position

The Fidelity Wise Origin Bitcoin Fund operates within a rapidly evolving and increasingly competitive market for Bitcoin investment products.

• Market Entry: FBTC was among the first wave of spot Bitcoin ETFs approved for trading in the U.S., positioning it as a significant early entrant in this new category of investment vehicles.
• Fidelity Brand: Leveraging Fidelity's established reputation and extensive distribution network, FBTC benefits from strong brand recognition and investor trust, which can be a key differentiator in attracting assets.
• Expense Ratio: The fund's expense ratio of 0.25% is positioned competitively within the landscape of newly launched spot Bitcoin ETFs, aiming to attract investors seeking cost-efficient exposure.
• Custody Solution: The use of Fidelity Digital Assets for Bitcoin custody provides a distinct advantage, offering institutional-grade security and expertise in managing digital assets, which can instill confidence among investors concerned about security risks.
• Target Market: FBTC competes for investors seeking regulated, accessible exposure to Bitcoin without the complexities of direct ownership, self-custody, or trading on unregulated exchanges. It aims to capture market share from existing Bitcoin investment products and attract new investors to the digital asset space through a familiar ETF wrapper.
• Differentiation: While the core offering of tracking Bitcoin's price is similar across spot Bitcoin ETFs, FBTC differentiates itself through its sponsor's long-standing financial services experience, robust operational infrastructure, and competitive fee structure.

Tax Implications

For U.S. federal income tax purposes, FBTC is generally treated as a "grantor trust" holding a commodity. This means investors are typically treated as if they directly own Bitcoin.

• Capital Gains/Losses: When you sell your FBTC shares, you will realize a capital gain or loss, which will be taxed at either short-term or long-term capital gains rates depending on how long you held the shares.
• Consult a Professional: The tax rules for digital assets can be complex and may change. Investors should consult with a qualified tax advisor regarding their specific situation.

Who is This Fund For?

FBTC is generally suitable for:

• Investors seeking convenient, regulated exposure to Bitcoin's price movements within a traditional brokerage account.
• Those comfortable with the high volatility and significant risks associated with Bitcoin and digital assets.
• Investors with a long-term investment horizon who can withstand potential substantial losses.

This fund is not suitable for risk-averse investors, those seeking income, or those who cannot tolerate significant fluctuations in their investment value.

In Summary

The Fidelity Wise Origin Bitcoin Fund (FBTC) offers an accessible, regulated pathway to invest in Bitcoin's price. Managed by Fidelity and holding actual Bitcoin, it simplifies the process for many investors. However, its newness, coupled with Bitcoin's extreme volatility, regulatory uncertainty, and unique operational risks, means it carries significant risk. Thorough due diligence and a clear understanding of these risks are essential before investing.