Invesco Galaxy Bitcoin ETF Annual Report Summary

1. Business Overview

The Invesco Galaxy Bitcoin ETF (BTCO) offers investors a straightforward way to gain exposure to Bitcoin's price movements. This Exchange Traded Fund (ETF) aims to mirror Bitcoin's performance, as measured by the Lukka Prime Bitcoin Reference Rate, after accounting for the Trust's operating expenses.

BTCO is passively managed; it tracks Bitcoin's price rather than trying to outperform it. The ETF holds actual Bitcoin, which Coinbase Custody Trust Company, LLC (the "Bitcoin Custodian") securely stores in cold storage. The Bitcoin Custodian keeps the Trust's Bitcoin in segregated accounts, distinct from its own assets and those of other clients.

BTCO shares began trading on the Cboe BZX Exchange on January 11, 2024. The Trust determines the value of its Bitcoin holdings daily using the Lukka Prime Bitcoin Reference Rate, which aggregates pricing data from multiple reputable Bitcoin exchanges. Authorized participants create and redeem ETF shares in large blocks, known as "Creation Baskets."

2. Financial Performance

As a newly launched ETF, investors primarily assess BTCO's financial performance by its ability to track Bitcoin's price and its asset growth, rather than traditional revenue or profit. Investors gain value from the appreciation of its Bitcoin holdings.

• Sponsor Fee: The Trust pays Invesco Capital Management LLC (the "Sponsor") an annual fee of 0.25% of the Trust's assets.
• Fee Waiver: To enhance competitiveness, the Sponsor waived the full 0.25% fee on the first $5 billion in Trust assets for the initial 6 months after its January 11, 2024 launch.
• Operating Expenses: The Sponsor covers most other regular operating costs, such as fees for the Trustee, Administrator, Bitcoin Custodian, exchange listing, legal, and audit services. This structure means the Sponsor Fee (when applicable) is the primary operational cost for investors.
• Initial Asset Growth: As of its most recent reporting period, the Trust's Assets Under Management (AUM) reached approximately $558.8 million.
• Shares Outstanding: Approximately 6.35 million common shares of beneficial interest are outstanding.
• Net Asset Value (NAV) per Share: The NAV per share was approximately $88.00.
• Year-over-Year Changes: Not applicable, as the ETF launched in January 2024 and has not completed a full fiscal year.

3. Risk Factors

Investing in BTCO carries significant risks, mainly from Bitcoin's inherent characteristics and the evolving digital asset market. Key risks include:

• Bitcoin Price Volatility: Bitcoin is subject to extreme and rapid price fluctuations, which can lead to substantial losses for investors.
• Regulatory Uncertainty: The regulatory landscape for digital assets is still developing and can change rapidly. New laws, regulations, or government policies (including potential bans or new tax rules) could negatively impact Bitcoin's value and the ETF.
• Custody Risk: While the Bitcoin Custodian employs robust security measures (cold storage, segregated accounts), no system is entirely risk-free. Risks such as cyberattacks, operational failures, or the custodian's insolvency could lead to a loss of the Trust's Bitcoin.
• Cybersecurity Risk: Bitcoin and its underlying blockchain technology are susceptible to cyberattacks, which could disrupt the network or compromise holdings.
• Market Manipulation: The Bitcoin market may be susceptible to manipulation due to its relatively concentrated ownership and fragmented trading venues.
• Concentration Risk: The ETF invests solely in Bitcoin, lacking diversification across other assets. Its performance is entirely dependent on Bitcoin's market success.
• Fork Risk: The Bitcoin network may undergo "forks," creating new versions of Bitcoin. The Trust may not be able to acquire or dispose of these new assets, or their value could be uncertain.
• Operational Risks: The Trust faces risks of tracking errors, valuation discrepancies, or other operational issues that could cause its performance to deviate from Bitcoin's price.
• Limited History & Unproven Asset Class: Bitcoin is a relatively new asset with limited long-term historical data, and its long-term viability and role in the global financial system remain uncertain.
• Not Government Backed: No government, central bank, or corporation guarantees Bitcoin's value. Its value relies purely on market demand and supply.

4. Management Discussion and Analysis (MD&A) Highlights

The MD&A provides a narrative overview of the Trust's financial condition and results of operations. For the initial period since its launch, key highlights include:

• Successful Launch and Market Entry: The Trust successfully commenced trading on January 11, 2024, marking a significant milestone in providing regulated spot Bitcoin exposure. Rapid investor adoption followed, evidenced by the accumulation of over half a billion dollars in AUM shortly after launch.
• Competitive Positioning: The Sponsor's strategic decision to implement a competitive fee structure, including an initial fee waiver, has been instrumental in attracting early investors and establishing market share in a crowded launch environment.
• Operational Stability: The Trust has maintained its operational integrity, with Coinbase Custody securely managing its Bitcoin holdings in segregated cold storage.
• Challenges and Uncertainties: Bitcoin's inherent price volatility remains the primary challenge. The Trust's performance directly reflects these fluctuations. Additionally, the evolving regulatory landscape for digital assets continues to create uncertainty, potentially impacting market sentiment and Bitcoin's valuation.
• Strategy: The Trust maintains its passive management strategy, focusing solely on tracking the Lukka Prime Bitcoin Reference Rate. Neither the Sponsor's core leadership nor the ETF's fundamental investment strategy has seen reported changes.
• Market Trends: The Trust's performance and outlook significantly depend on broader market trends, including increasing institutional interest in digital assets, macroeconomic factors (e.g., inflation, interest rates), and regulatory developments. Bitcoin halving events also drive significant market activity.

5. Financial Health

The Invesco Galaxy Bitcoin ETF's financial health depends entirely on the value and security of its Bitcoin holdings, its primary asset.

• No Debt: The Trust operates without any debt, consistent with its structure as a passively managed, single-asset fund.
• Cash Management: While primarily holding Bitcoin, the Trust maintains a minimal cash balance to cover operational expenses.
• Liquidity: The Trust's liquidity comes primarily from Bitcoin's own liquidity, which can be volatile. Authorized participants' ability to create and redeem shares in large blocks helps keep the ETF's market price aligned with its NAV.
• Custody Security: Robust custody arrangements form a cornerstone of the Trust's financial health. Coinbase Custody holds the Trust's Bitcoin in segregated cold storage accounts, ensuring the Trust's assets remain separate from the custodian's own funds and other clients' assets, which mitigates counterparty risk.

6. Future Outlook

The Invesco Galaxy Bitcoin ETF's future outlook depends entirely on Bitcoin's trajectory and the broader digital asset ecosystem.

• Bitcoin's Trajectory: The Sponsor anticipates continued evolution and potential growth within the digital asset space, and expects Bitcoin to maintain a central role. However, the Sponsor acknowledges that Bitcoin's price will likely remain highly volatile, influenced by market sentiment, macroeconomic conditions, and regulatory developments.
• Institutional Adoption: The launch of spot Bitcoin ETFs, including BTCO, serves as a catalyst for increased institutional adoption of Bitcoin. The Sponsor expects this trend to continue, potentially driving further demand for Bitcoin and the ETF.
• Continued Volatility: Investors should anticipate ongoing price swings. The ETF's performance will directly mirror these movements, and there is no expectation of reduced volatility in the near term.
• Strategy: The Trust will continue to adhere to its passive investment strategy, aiming to track the performance of Bitcoin as closely as possible, net of expenses.

7. Competitive Position

The Invesco Galaxy Bitcoin ETF launched into a highly competitive market alongside several other spot Bitcoin ETFs. Its competitive positioning rests on:

• Fee Structure: The Trust's 0.25% sponsor fee, coupled with the initial fee waiver on the first $5 billion in assets for six months, positions it competitively to attract cost-conscious investors.
• Sponsor Reputation: The collaboration between Invesco, a well-established global asset manager, and Galaxy Digital, a prominent financial services and investment management firm in the digital asset sector, lends significant credibility and institutional backing.
• Custody Solution: The selection of Coinbase Custody, a leading and regulated cryptocurrency custodian known for its robust security protocols and cold storage solutions, is a key differentiator for security-conscious investors.
• Market Share: The rapid accumulation of assets post-launch indicates strong initial competitive performance in attracting investor capital.