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GRAYSCALE BITCOIN TRUST (BTC)

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GRAYSCALE BITCOIN TRUST (BTC) : Other Events, Financial Statements and Exhibits (form 8-K)

01/07/2021 | 04:02pm EDT

Item 8.01. Other Events.

Appointment of Chief Executive Officer

On December 31, 2020, the sole member of Grayscale Investments, LLC, the sponsor (the "Sponsor") of Grayscale Bitcoin Trust (BTC) (the "Trust"), appointed Michael Sonnenshein as Chief Executive Officer of the Sponsor. Mr. Sonnenshein succeeds Barry E. Silbert, who will remain as Chairman of the board of directors of the Sponsor. A copy of the press release announcing the appointment is attached to this Report as Exhibit 99.1.

Michael Sonnenshein, Board Member and Chief Executive Officer

Michael Sonnenshein, 34, is CEO of the Sponsor, having served as Managing Director of the Sponsor since 2018. In this role, Mr. Sonnenshein oversees the strategic direction and growth of the business and its $19 billion in assets under management. Mr. Sonnenshein is also responsible for maintaining many of the firm's key relationships with clients, industry stakeholders, and regulators as well as managing the development of the Sponsor's single-asset and diversified digital currency products. From 2015 to 2017, Mr. Sonnenshein was Director of Sales & Business Development for the Sponsor, and prior to that served as an Account Executive from 2014 to 2015. Prior to joining the Sponsor, Mr. Sonnenshein was a financial advisor at JP Morgan Securities, covering HNW individuals and institutions, and an analyst at Barclays Wealth, providing coverage to middle-market hedge funds and institutions. Mr. Sonnenshein earned his Bachelor of Business Administration from the Goizueta Business School at Emory University and his Master of Business Administration from the Leonard N. Stern School of Business at New York University. Mr. Sonnenshein was honored in 2018 as one of Business Insider's Rising Stars of Wall Street and serves as a member of the CME Group Bitcoin Futures Council and NYU Blockchain Association.

Acquisition of Index Provider

On January 5, 2021, CoinDesk, Inc., an affiliate of the Trust, and TradeBlock, Inc., the Index Provider for the Trust, announced that CoinDesk, Inc. acquired TradeBlock, Inc. on December 31, 2020. CoinDesk, Inc. and Grayscale Investments, LLC, the Sponsor of the Trust, are wholly owned subsidiaries of Digital Currency Group Inc. As a result of such acquisition, the Trust is updating its risk factor and its conflicts of interest disclosure contained in its Securities and Exchange Commission filings as follows:

Updates to the Trust's risk factor disclosure:

Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust. The Sponsor and its affiliates have no fiduciary duties to the Trust and its shareholders other than as provided in the Trust Agreement, which may permit them to favor their own interests to the detriment of the Trust and its shareholders.

The Sponsor will manage the affairs of the Trust. Conflicts of interest may arise among the Sponsor and its affiliates, including the Index Provider and the Authorized Participants, on the one hand, and the Trust and its shareholders, on the other hand. As a result of these conflicts, the Sponsor may favor its own interests and the interests of its affiliates over the Trust and its shareholders. These potential conflicts include, among others, the following:

   •  The Sponsor has no fiduciary duties to, and is allowed to take into account
      the interests of parties other than, the Trust and its shareholders in
      resolving conflicts of interest, provided the Sponsor does not act in bad
      faith;




   •  The Trust has agreed to indemnify the Sponsor and its affiliates pursuant to
      the Trust Agreement;




   •  The Sponsor is responsible for allocating its own limited resources among
      different clients and potential future business ventures, to each of which
      it owes fiduciary duties;




   •  The Sponsor and its staff also service affiliates of the Sponsor, including
      several other digital asset investment vehicles, and their respective
      clients and cannot devote all of its, or their, respective time or resources
      to the management of the affairs of the Trust;




   •  The Sponsor, its affiliates and their officers and employees are not
      prohibited from engaging in other businesses or activities, including those
      that might be in direct competition with the Trust;




   •  Affiliates of the Sponsor have substantial direct investments in Bitcoin
      that they are permitted to manage taking into account their own interests
      without regard to the interests of the Trust or its shareholders, and any
      increases, decreases or other changes in such investments could affect the
      Index Price and, in turn, the price of the Shares;



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   •  There is an absence of arm's-length negotiation with respect to certain
      terms of the Trust, and, where applicable, there has been no independent due
      diligence conducted with respect to the Trust;




   •  Several employees of the Sponsor and the Sponsor's parent company, Digital
      Currency Group, Inc., are FINRA-registered representatives who maintain
      their licenses through Genesis;




   •  Digital Currency Group, Inc. is (i) the sole member and parent company of
      the Sponsor and Genesis, the only acting Authorized Participant as of the
      date of this Annual Report, (ii) the indirect parent company of the Index
      Provider, (iii) a minority interest holder in Coinbase, which operates
      Coinbase Pro, one of the Digital Asset Exchanges included in the Index, and
      which is also the parent company of the Custodian, representing less than
      1.0% of its equity, (iv) a minority interest holder in Paxos, which operates
      itBit, one of the Digital Asset Exchanges included in the Index,
      representing less than 1.0% of its equity and (v) a minority interest holder
      in Kraken, one of the Digital Asset Exchanges included in the Index,
      representing less than 1.0% of its equity;




   •  Digital Currency Group, Inc. has investments in a large number of digital
      assets and companies involved in the digital asset ecosystem, including
      exchanges and custodians. Digital Currency Group, Inc.'s positions on
      changes that should be adopted in the Bitcoin Network could be adverse to
      positions that would benefit the Trust or its shareholders. Additionally,
      before or after a hard fork on the Bitcoin Network, Digital Currency Group,
      Inc.'s position regarding which fork among a group of incompatible forks of
      the Bitcoin Network should be considered the "true" Bitcoin Network could be
      adverse to positions that would most benefit the Trust;




   •  Digital Currency Group, Inc. has been vocal in the past about its support
      for digital assets other than Bitcoin. Any investments in, or public
      positions taken on, digital assets other than Bitcoin by Digital Currency
      Group, Inc. could have an adverse impact on the price of Bitcoin;




   •  The Sponsor decides whether to retain separate counsel, accountants or
      others to perform services for the Trust;




   •  The Sponsor and Genesis, which acts as Authorized Participant and
      distributor and marketer for the Shares, are affiliated parties that share a
      common parent company, Digital Currency Group, Inc.;




   •  While the Index does not currently utilize data from over-the-counter
      markets or derivatives platforms, it may decide to include pricing from such
      markets or platforms in the future, which could include Genesis; and




   •  The Sponsor may appoint an agent to act on behalf of the shareholders,
      including in connection with the distribution of any Incidental Rights
      and/or IR Virtual Currency, which agent may be the Sponsor or an affiliate
      of the Sponsor.



By purchasing the Shares, shareholders agree and consent to the provisions set forth in the Trust Agreement.

The Index Provider, which calculates the Index Price, is an affiliate of the Sponsor and the Trust.

On December 31, 2020, CoinDesk, Inc., an affiliate of the Sponsor and a wholly owned subsidiary of Digital Currency Group, Inc., acquired TradeBlock, Inc., the Index Provider. As a result of this acquisition, the Index Provider will become a wholly owned subsidiary of CoinDesk, Inc., which is a wholly owned subsidiary of Digital Currency Group, Inc. The Index Provider publishes the Index and the Index Price, which are used by the Sponsor to calculate the Digital Asset Holdings of the Trust. The Sponsor's Fee accrues daily in U.S. dollars at an annual rate based on the Digital Asset Holdings Fee Basis Amount, which is based on the Digital Asset Holdings of the Trust, and is paid in Bitcoin. The number of Bitcoin that accrues each day as the Sponsor's Fee is determined by reference to the Index Price published by the Index Provider.

The Index Provider selects the exchanges that are included in the Index and also developed the methodology and algorithm that provide the Index Price based on the exchanges included in the Index. The Index Provider formally re-evaluates the weighting algorithm used by the Index quarterly and may decide to change the way in which the Index is calculated based on this periodic review or in other extreme circumstances.

Under the rules governing the calculation of the Index Price, if the Sponsor determines in good faith that the Index does not reflect an accurate Bitcoin price, then the Sponsor will employ an alternative method to determine the Index Price. Because such a determination could reflect negatively upon the Index Provider, lead to a decrease in the Index Provider's revenue or otherwise adversely affect the

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Index Provider, and because of their affiliation, the Index Provider may be incentivized to resolve any questions regarding, or changes to, the manner in which the Index is constructed and in which the Index Price is calculated in a way that favors the Sponsor.

In addition, although the Index does not currently include data from over-the-counter markets or derivatives platforms, the Index Provider may decide to include pricing from such markets or platforms in the future, which could include data from the affiliated Authorized Participant or Distributor and Marketer. Any impact on the accuracy or perceived accuracy of the Index Price could have a negative impact on the value of the Shares.

Updates to the Trust's conflicts of interest disclosures:

The Index Provider

Digital Currency Group, Inc. is the indirect parent company of the Index Provider. As a result, the Index Provider is an affiliate of the Sponsor and the Trust and has an incentive to resolve questions regarding, or changes to, the manner in which the Index is constructed and in which the Index Price is calculated in a way that favors the Sponsor and the Trust.

In addition, Genesis, the only Authorized Participant as of the date hereof, licenses and uses a trading software platform provided by the Index Provider to operate its Bitcoin trading desk and to facilitate Genesis's actions as an Authorized Participant. Although the Index Provider does not currently utilize data from over-the-counter markets or derivative platforms, per the terms of the license, the Index Provider is entitled to use the over-the-counter trading data from Genesis in the Index.

Item 9.01. Financial Statements and Exhibits




(d)    Exhibits



Exhibit No.                                 Description

99.1            Press Release Announcing Appointment of Michael Sonnenshein as CEO of
              Grayscale



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© Edgar Online, source Glimpses

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