Grayscale Investments, LLC (“Grayscale”) is the largest digital currency asset manager. With approximately $3.3B AUM,* Grayscale provides opportunities for investors to gain exposure to the digital currency asset class.
Grayscale is the sponsor of Grayscale Bitcoin Trust (BTC), Grayscale Bitcoin Cash Trust (BCH), Grayscale Ethereum Trust (ETH), Grayscale Ethereum Classic Trust (ETC), Grayscale Horizen Trust (ZEN), Grayscale Litecoin Trust (LTC), Grayscale Stellar Lumens Trust (XLM), Grayscale XRP Trust (XRP) and Grayscale Zcash Trust (ZEC), and the manager of Grayscale Digital Large Cap Fund LLC. The trusts and the fund are collectively referred to herein as the “Products”. Any Product currently offering share creations is referred to herein as an “Offered Product”. Grayscale Digital Large Cap Fund is currently not an Offered Product.
*As of April 30, 2020
The Products are privately offered investment vehicles available to institutional and accredited individual investors through their respective private placements. Grayscale’s single-asset Products provide exposure to Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ethereum Classic (ETC), Horizen (ZEN), Litecoin (LTC), Stellar Lumens (XLM), XRP, and Zcash (ZEC). Grayscale’s diversified Product, Grayscale Digital Large Cap Fund, provides exposure to the top liquid digital assets by market capitalization and currently holds BTC, ETH, XRP, LTC, and BCH. The Grayscale Digital Large Cap Fund private placement is also offered on a periodic basis to accredited investors* only but is currently closed.
Each Product’s investment objective is for the value of its shares (based on digital assets per share) to reflect the price performance of such Product’s underlying digital asset(s), less fees and expenses. Modeled after popular commodity investment products, each Product was created for investors seeking exposure to digital assets through a traditional investment vehicle.
Additionally, Grayscale Bitcoin Trust (OTCQX: GBTC), Grayscale Ethereum Trust, (OTCQX: ETHE), Grayscale Ethereum Classic Trust (OTCQX: ETCG), and Grayscale Digital Large Cap Fund (OTCQX: GDLC) are publicly-quoted on the OTCQX® Best Market, the top tier operated by the OTC Markets Group and available to all individual and institutional investors.
Except for Grayscale Bitcoin Trust, which became an SEC reporting company on January 21, 2020, the Products are not registered with the U.S. Securities and Exchange Commission (the “SEC”) and are not subject to disclosure and certain other requirements mandated by U.S. securities laws. Investors considering an investment in an Offered Product should carefully read such Offered Product’s Private Placement Memorandum, which is available upon request from Grayscale. Additional information for Grayscale Bitcoin Trust, Grayscale Ethereum Trust, Grayscale Ethereum Classic Trust, and Grayscale Digital Large Cap Fund is also available on the SEC’s website or in such Product’s annual and quarterly reports on the OTC Markets website, www.otcmarkets.com. Such OTC Markets reports are not prepared in accordance with SEC requirements and may not contain all information that is useful for an informed investment decision.
These FAQ’s are qualified in all respects by the information in each Offered Product’s Private Placement Memorandum or each Product’s annual and quarterly reports, as applicable, including the Risk Factors therein.
The Products offer the benefits of investing in digital assets without having to purchase, transfer, and store digital assets themselves and manage additional individual accounts, wallets, and private keys. The Products were developed to offer investors ease of mind and an investment product that is familiar to both financial advisors and investors.
Ease and Peace of Mind
Often, individuals and institutions seeking to directly purchase or sell digital assets must themselves transact via unfamiliar exchanges or intermediaries that in some cases may be unregulated and/or insecure. This often requires investors to transmit funds to jurisdictions where they might not be comfortable. In addition, storing digital assets on one’s own can add additional risks, as the private keys (the digital asset equivalent of passwords) which ensure access to an investor’s digital assets can be susceptible to loss or theft. This potentially exposes one’s digital asset position to partial or total loss, often with limited or no recourse to regain access to the digital assets.
In contrast, by investing in shares of the Products, investors avoid the challenges of purchasing, transferring, and storing digital assets on their own, and instead pass these tasks onto Grayscale and each Product’s service providers while maintaining their exposure to the price performance of digital assets. Each Product’s underlying assets are safeguarded with robust security procedures that include offline storage, or “cold” storage, multiple encrypted private key shards, usernames, passwords and 2-step verification. The system’s underlying protocols are designed by experienced security, financial, legal and technology professionals, and are overseen by a financial operations principal. Each Product’s financial statements are audited annually by Friedman LLP.
Cost Effective Order Fulfillment
Purchasing large orders of digital assets can be challenging. Few digital asset exchanges and order books can reliably fill large orders without significant price slippage. Depending on the timing and size of the transaction, a trade on a given exchange could move the market materially. Each Offered Product’s authorized participant executes large purchase and sale orders through exchanges and over-the-counter transactions to create shares for investors at a blended daily average price based on the following digital asset reference rates:
|Product||Digital Asset Reference Rate|
|Grayscale Bitcoin Trust (BTC)||TradeBlock XBX Index|
|Grayscale Bitcoin Cash Trust (BCH)||TradeBlock BCX Index|
|Grayscale Ethereum Trust (ETH)||TradeBlock ETX Index|
|Grayscale Ethereum Classic Trust (ETC)||TradeBlock ECX Index|
|Grayscale Horizen Trust (ZEN)||TradeBlock ZEN Reference Rate|
|Grayscale Litecoin Trust (LTC)||TradeBlock LTX Index|
|Grayscale Stellar Lumens Trust (XLM)||Tradeblock XLMX Index|
|Grayscale XRP Trust (XRP)||Tradeblock XRX Index|
|Grayscale Zcash Trust (ZEC)||Tradeblock ZCX Index|
|Grayscale Digital Large Cap Fund LLC*||TradeBlock XBX, ETX, XRX, BCX and LTX Indices|
Titled, Transferable, and IRA Eligible
Shares of the Products are titled securities, which are similar to other common stocks and bonds that investors may own. Titled securities are familiar to financial and tax advisors, and easily transferred to beneficiaries under estate laws. Shares of the Products are also eligible to be held in certain IRAs, 401ks, and other brokerage and investment accounts. Consult your investment and tax advisors for additional information.
*TradeBlock also publishes the TradeBlock DLCX Index, which allows investors and other market participants to obtain enhanced real-time transparency into the composition and performance of GDLC. While GDLC’s portfolio construction methodology was developed and is managed by Grayscale, an intra-day index price is calculated, verified, and published in real-time by TradeBlock, an independent pricing source. For more information, please visit: https://tradeblock.com/markets/dlcx.
Each Product charges an annual administration and safekeeping fee, as indicated below, which accrues daily. We expect this fee to be the only ordinary recurring expense for each Product. For further details on each Product’s fees, please review each Offered Product’s Private Placement Memorandum or each Product’s annual and quarterly reports, as applicable.
|Grayscale Bitcoin Trust (BTC)||2.0%|
|Grayscale Bitcoin Cash Trust (BCH)||2.5%|
|Grayscale Ethereum Trust (ETH)||2.5%|
|Grayscale Ethereum Classic Trust (ETC)||3.0%*|
|Grayscale Horizen Trust (ZEN)||2.5%|
|Grayscale Litecoin Trust (LTC)||2.5%|
|Grayscale Stellar Lumens Trust (XLM)||2.5%|
|Grayscale XRP Trust (XRP)||2.5%|
|Grayscale Zcash Trust (ZEC)||2.5%|
|Grayscale Digital Large Cap Fund LLC||3.0%|
*In order to promote the growth and development of the Ethereum Classic network, the Sponsor intends, but is not obligated, to direct up to one-third of the annual fee of Grayscale Ethereum Classic Trust towards the Ethereum Classic Cooperative, whose initiatives support development, marketing, and community activities of the Ethereum Classic network. For more information, visit etccooperative.org.
Accredited investors are eligible to directly invest in an Offered Product and purchase shares at such Offered Product’s daily “Holdings per Share” (non-GAAP NAV based on the Offered Product’s applicable digital asset reference rate). Shares purchased directly from an Offered Product are restricted and subject to significant limitations on resale and transferability.
Conversely, investors may choose to purchase a Product’s eligible shares on the OTCQX® Best Market at the applicable market price. These securities have been deemed freely tradeable under SEC Rule 144 and are not subject to restrictions on resale or transferability once purchased. The Products that are currently publicly quoted on the OTCQX® Best Market and available to all individual and institutional investors are Grayscale Bitcoin Trust (OTCQX: GBTC), Grayscale Ethereum Trust, (OTCQX: ETHE), Grayscale Ethereum Classic Trust (OTCQX: ETCG), and Grayscale Digital Large Cap Fund (OTCQX: GDLC).
Each Product’s Holdings is calculated each business day at 4 p.m., New York time and subsequently published. The Product’s Holdings calculation is based off of such Product’s applicable digital asset reference rate, taking into account a trailing 24-hour VWAP across the major digital asset exchanges that comprise such digital asset reference rate. For further details on how Holdings is calculated, please review each Offered Product’s Private Placement Memorandum or each Product’s annual and quarterly reports, as applicable. Each Product’s Holdings is calculated using non-GAAP methodology.
It is possible that your IRA or retirement account provider may allow you to purchase shares in a Product. For additional information, please inquire with the Grayscale team. Please note that Grayscale does not and will not provide any advice or recommendation regarding investment in any Product and that you should consult your own advisers before making any decision to purchase shares in a Product.
Each Product’s assets are stored in offline storage, or “cold” storage, with Coinbase Custody Trust Company, LLC, as (the “Custodian”). The Custodian is a fiduciary under § 100 of the New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act of 1940, as amended. For more information about the Custodian, please visit their site.
Products that are Delaware Statutory Trusts
Each Product intends to take the position that it is a grantor trust for U.S. federal income tax purposes. Assuming that such Product is a grantor trust, shareholders generally will be treated as if they directly owned their pro rata shares of the underlying assets held in such Product. Shareholders also will be treated as if they directly received their respective pro rata shares of such Product’s income, and directly incurred their pro rata shares of such Product’s expenses. Most state and local tax authorities follow U.S. income tax rules in this regard. Prospective investors in such Product should discuss the tax consequences of an investment in such Product with their tax advisors.
Products that are Cayman Islands LLCs
For U.S. federal income tax purposes, Grayscale Digital Large Cap Fund will be a passive foreign investment company (a “PFIC”) and, in certain circumstances, may be a controlled foreign corporation (a “CFC”). Grayscale Digital Large Cap Fund™ will make available a PFIC Annual Information Statement that will include information required to permit each eligible shareholder to make a “qualified electing fund” election (a “QEF Election”) with respect to Grayscale Digital Large Cap Fund. Each shareholder that is a taxable U.S. person for U.S. federal income tax purposes is urged to make a QEF Election with respect to Grayscale Digital Large Cap Fund. Prospective investors in Grayscale Digital Large Cap Fund should discuss the U.S. federal income tax consequences of an investment in Grayscale Digital Large Cap Fund with their tax advisors, including the consequences to them of an investment in a PFIC or CFC.
Existing and prospective investors may contribute coins in kind for shares of Grayscale’s single-asset Products. Assuming that each Product is treated as a grantor trust for U.S. federal income tax purposes, such contributions should be a non-taxable event. All investors should discuss the tax consequences of an investment in Grayscale’s family of Products with their tax advisors and review the section entitled “Certain U.S. Federal Income Tax Consequences” in each Offered Product’s Private Placement Memorandum or each Product’s annual and quarterly reports, as applicable, before investing in a Grayscale single-asset Product or considering an in-kind contribution of coins to a Product.
As described more fully in each Offered Product’s Private Placement Memorandum or each Product’s annual and quarterly reports, as applicable, an investment in any of the Products is highly speculative in nature. The trading prices of many digital assets, including those held by the Products, have experienced extreme volatility in recent periods and may continue to do so. For instance, there were steep increases in the value of certain digital assets, including those held by the Products, over the course of 2017, and multiple market observers asserted that digital assets were experiencing a “bubble.” These increases were followed by steep drawdowns throughout 2018 in digital asset trading prices, including those held by the Products. These drawdowns notwithstanding, digital asset prices have increased significantly again during 2019 and decreased significantly again in 2020 amidst broader market declines as a result of the novel coronavirus outbreak. The digital asset markets may still be experiencing a bubble or may experience a bubble again in the future. Extreme volatility in the future, including further declines in the trading prices of digital assets could have a material adverse effect on the value of the shares of any of the Products and such shares could lose all or substantially all of their value.
Only accredited investors are eligible to invest in the Offered Products. An accredited investor includes:
In addition, entities such as banks, partnerships, corporations, nonprofits and trusts may be accredited investors. Of the entities that would be considered accredited investors and depending on your circumstances, the following may be relevant to you:
For this purpose, a sophisticated person means a person who has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment.
An SEC Reporting Company is an issuer that is subject to the periodic and current reporting requirements of the Exchange Act.
The Exchange Act contains ongoing disclosure requirements designed to keep investors informed on a current basis of information concerning material changes in the financial condition or operations of the issuer. The requirements include an obligation to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC.
For comparison, any other public company or public fund — from Apple to SPDR Gold Trust — similarly is required to file periodic reports on Form 10-K and Form 10-Q, and current reports on Form 8-K with the SEC.
Previously, investors of the Trust received annual and quarterly reports and financial statements pursuant to OTC Market’s Alternative Reporting Standards (ARS). Now that the Form 10 has gone effective, investors of the Trust will instead receive annual reports and financial statements on Form 10-K, quarterly reports and financial statements on Form 10-Q, and current reports on Form 8-K.
Form 10 is one type of form registration statement used to register securities pursuant to the Exchange Act and thus make an issuer an SEC Reporting Company. On November 19, 2019, Grayscale publicly filed a Form 10 on behalf of the Trust.* This was a voluntary filing subject to SEC review. On January 21, 2020, the Form 10 became effective and the Trust became an SEC Reporting Company with shares registered pursuant to Section 12(g) the Exchange Act.** As a result, the Trust is the first digital currency investment vehicle to become an SEC reporting company.
*The Grayscale Bitcoin Trust Private Placement is offered on a periodic basis throughout the year to accredited investors. Because the Trust’s private placement does not currently operate a redemption program, there are no assurances that the value of the Shares will approximate the value of the Bitcoin held by the Trust, less the Trust’s expenses and other liabilities, and the shares may trade at a substantial premium over, or a substantial discount to, the value of the Bitcoin held by the Trust, less the Trust’s expenses and other liabilities.
**This voluntary filing should not be confused as an effort to classify Grayscale Bitcoin Trust as an exchange traded fund (ETF). The structure of the Trust will not change and it will continue to not operate a redemption program nor trade on a national securities exchange.
To “go effective” means the Trust has become an SEC Reporting Company and the reporting obligations and other changes described below have begun.
Trust Reporting: The Trust has published quarterly and annual reports as well as audited financial statements pursuant to OTC Market’s Alternative Reporting Standards (ARS) since its inception in September 2013. Now that the Form 10 has gone effective, the Trust will file these reports and financial statements as 10-Qs and 10-Ks with the SEC, along with current reports on Form 8-K, in addition to complying with all other obligations under the Exchange Act. Shareholders should consult their advisors for any additional reporting requirements to which they may be subject.
Fees: There will be no change to the annual fee.
Holding Period Reduction: The previous 12 month holding period under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”) was reduced to 6 months as of April 20, 2020.***
Trust Reporting: The Trust has published quarterly and annual reports as well as audited financial statements pursuant to the OTC Markets Alternative Reporting Standards (ARS) since its inception in September 2013. Now that the Form 10 has gone effective, the Trust will file these reports and financial statements as 10-Qs and 10-Ks with the SEC, along with current reports on Form 8-K, in addition to complying with all other obligations under the Exchange Act. Shareholders should consult their advisors for any additional reporting requirements to which they may be subject.
Fees: There will be no change to the annual fee.
***The holding period reduction became effective after the Trust had been a reporting company for at least 90 days, provided it continues to satisfy the other requirements under Rule 144 of the Securities Act.