OSPREY BITCOIN TRUST Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read together with, and is qualified in its entirety by
reference to, our unaudited financial statements and related notes included
elsewhere in this Quarterly Report, which have been prepared in accordance with
generally accepted accounting principles in the United States (“U.S. GAAP”). The
following discussion may contain forward-looking statements based on assumptions
we believe to be reasonable. Our actual results could differ materially from
those discussed in these forward-looking statements. Factors that could cause or
contribute to these differences include, but are not limited to, those set forth
under Part II, Item 1A. Risk Factors in this Quarterly Report.

Trust Overview

The Trust is a passive investment vehicle and its assets will not be actively
managed. As a result, it will not engage in any activities designed to obtain a
profit from, or to ameliorate losses caused by, changes in the market prices of
Bitcoins.

The investment objective of the Trust is for the Units to reflect the
performance of Bitcoin as measured by reference to the Index, less the aggregate
Trust expenses and other liabilities. The Units are intended to constitute a
cost-effective and convenient means of gaining investment exposure to Bitcoin.
However, an investment in the Units may operate and perform differently over
time, and at any given time, than an investment directly in Bitcoin due to such
factors as Trust fees and expenses, the quantity of Units available for trading,
and the relative liquidity, and differences in the markets trading Bitcoin from
the markets trading the Units (e.g. hours of operation, marketplace rules,
clearance and settlement, market participants). Although the Units will not be
the exact equivalent of a direct investment in Bitcoin, they provide investors
with an alternative that constitutes a relatively cost-effective way to
participate in Bitcoin markets through the securities market.

The activities of the Trust are limited to (i) issuing Units in exchange for
cash or Bitcoin transferred to the Trust as consideration in connection with the
issuance of those Units, (ii) transferring or selling Bitcoin (including forks
in the Bitcoin Network) as necessary to pay the 0.49% Management Fee, audit
fees, index license fees, aggregate legal fees in excess of $50,000 and the fees
of the Custodian (collectively, the “Excluded Expenses”) and certain
extraordinary expenses of the Trust, including but not limited to taxes and
governmental charges, expenses and costs, expenses and indemnities related to
any extraordinary services performed by the Sponsor (or any other service
provider, including the Trustee) on behalf of the Trust to protect the Trust or
the interest of Unitholders, indemnification expenses, fees and expenses related
to public quotation on OTCQX (collectively, the “Extraordinary Expenses”), (iii)
transferring Bitcoin in exchange for Units surrendered for redemption (at such
time as redemptions from the Trust are permitted by the SEC and subject to the
approval of the Sponsor), (iv) causing the Sponsor to sell Bitcoins upon the
termination of the Trust, (v) making distributions of Bitcoin (including any
Additional Currency (as defined below)) or cash from the sale thereof, and (vi)
engaging in all administrative and security procedures necessary to accomplish
such activities in accordance with the provisions of the Trust Agreement and the
custodial services agreement.

At this time, the Trust is not operating a redemption program for Units and
therefore Units are not redeemable by the Trust. In addition, the Trust may halt
issuances of Units for extended periods of time. As a result, the value of the
Units of the Trust may not approximate, and when traded on any secondary market,
the Units may trade at a substantial premium over, or discount to, the Trust’s
NAV per Unit.

Additional Currency

From time to time, the Trust may come into possession of rights incident to its
ownership of Bitcoins, which permit the Trust to acquire, or otherwise establish
dominion and control over, other virtual currencies. These rights are generally
expected to arise in connection with forks in the Blockchain, airdrops offered
to holders of Bitcoins and other similar events and arise without any action of
the Trust or of the Sponsor or Trustee on behalf of the Trust. We refer to these
rights as “Incidental Rights” and any such virtual currency acquired through
Incidental Rights as “Additional Currency.” The Trust does not expect to take
any Additional Currency it may hold into account for purposes of determining the
Trust’s Bitcoin Holdings or the Bitcoin Holdings per Unit.

With respect to any fork, airdrop or similar event, the Sponsor may, in its
discretion, decide to cause the Trust to distribute the Additional Currency
in-kind to an agent of the Unitholders for resale by such agent, or to
irrevocably abandon the Additional Currency. In the case of a distribution
in-kind, the Unitholders’ agent would attempt to sell the Additional Currency,
and if the agent is able to do so, remit the cash proceeds to Unitholders. There
can be no assurance as to the price or prices for any Additional Currency that
the agent may realize, and the value of the Additional Currency may increase or
decrease after any sale by the agent. In the case of abandonment, the Trust
would not receive any direct or indirect consideration for the Additional
Currency and thus the value of the Units will not reflect the value of the

Additional Currency.

Trust Expenses

The Trust’s only ordinary recurring expenses are expected to be the Management
Fee, index license fees and custody fees. The Trust is also responsible for
annual legal fees in excess of $50,000, and audit fees. The Management Fee is
assessed at an annual rate of 0.49% of the daily NAV of the Trust and will
accrue solely in Bitcoins and will be payable at the Sponsor’s sole discretion,
in Bitcoins or U.S. dollars and valued at the Bitcoin Market Price (as defined
below) in effect for such Bitcoin at the time of such payment. The Management
Fee is payable to the Sponsor monthly in arrears. If the Trust holds any
Additional Currency, the Trust may pay the Management Fee, in whole or in part,
with such Additional Currency by entering into an agreement with the Sponsor and
transferring such Additional Currency to the Sponsor at a value to be determined
in accordance with the terms of such agreement, but only if such agreement and
transfer do not conflict with the terms of the Trust Agreement.

The Trust’s NAV is calculated daily, by reference to the Bitcoin market price as
measured at 4:00 p.m., New York time available at
https://pro.coinbase.com/trade/BTC-USD (the “Bitcoin Market Price”). The
administrator, on behalf of the Trust, accrues the custody and Management Fees
on a daily basis. Expenses are accrued in Bitcoin, and the accrual balance is
evaluated daily, based on the fluctuations in the Bitcoin Market Price. Custody
fees are calculated based on the total Bitcoins held in the Trust as of the end
of the day and according to the agreed upon fee schedule with the Custodian.
Management Fees are calculated daily net of the current day-accrued Custody
fees. All expenses are allocated pro rata based on the number of Units issued
and outstanding.

To cause the Trust to pay Trust Expenses, the Sponsor will instruct the
Custodian to (i) withdraw from the Bitcoin account the number of Bitcoins equal
to the accrued but unpaid Fees and (ii) transfer such Bitcoins to the Sponsor’s
account at such times as the Sponsor determines in its absolute discretion.

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As partial consideration for its receipt of the Management Fee, the Sponsor has
assumed the obligation to pay the fees paid to the Trustee, the Transfer Agent,
and the Custodian (“Assumed Expenses”). The Sponsor has not assumed the
obligation to pay Assumed Expenses.

After payment of the Assumed Expenses for the Trust, the Sponsor may use the
remaining portion of the Management Fee received from the Trust at its
discretion, which may include the payment of fees from time to time for the
referral of new investors in the Trust.

The number of Bitcoins represented by a Unit will decline each time the Trust
pays the Management Fee or any Assumed Expenses by transferring or selling
Bitcoins.

Critical Accounting Policies and Estimates

Investment Transactions and Revenue Recognition

The Trust considers investment transactions to be the receipt of Bitcoin for
Units creations and the delivery of Bitcoin for Units redemptions or for payment
of expenses in Bitcoin. At this time, the Trust is not accepting redemption
requests from unitholders. The Trust records its investment transactions on a
trade date basis and changes in fair value are reflected as net change in
unrealized appreciation or depreciation on investments. Realized gains and
losses are calculated using the specific identification method. Realized gains
and losses are recognized in connection with transactions including settling
obligations for the Sponsor Fee in Bitcoin.

Principal Market and Fair Value Determination

To determine which Bitcoin market will serve as the Trust’s principal market (or
in the absence of a principal market, the most advantageous market) for purposes
of calculating the Trust’s NAV, the Trust follows Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, which outlines
the application of fair value accounting. ASC 820-10 determines fair value to be
the price that would be received for Bitcoin in a current sale, which assumes an
orderly transaction between market participants on the measurement date. ASC
820-10 requires the Trust to assume that Bitcoin is sold in its principal market
to market participants or, in the absence of a principal market, the most
advantageous market. Market participants are defined as buyers and sellers in
the principal or most advantageous market that are independent, knowledgeable,
and willing and able to transact.

The Trust purchases Bitcoin directly from various counterparties, such as Galaxy
Digital, Jane Street, and Cumberland DRW LLC, and does not itself transact in
any Bitcoin markets. Therefore, the Trust looks to these counterparties when
assessing entity-specific and market-based volume and the level of activity in
the Bitcoin markets. The Trust utilizes the Bitcoin Market Price to determine
the value of Bitcoin at any given time. The Trust evaluates its principal market
selection (or in the absence of a principal market the most advantageous market)
at least annually and conducts a quarterly analysis to determine (i) if there
have been recent changes to each Bitcoin market’s trading volume and level of
activity in the trailing twelve months, (ii) if any Bitcoin markets have
developed that the Trust has access to, or (iii) if recent changes to a Bitcoin
market’s price stability have occurred that would materially impact the
selection of the principal market and necessitate a change in the Trust’s
determination of its principal market. The Trust does not anticipate changing
its principal market more frequently than annually, in connection with its
annual evaluation of its principal market selection and annual financial audit.
Each annual evaluation will take into account the findings from the Trust’s
quarterly reviews.

The cost basis of a Trust investment in Bitcoin recorded by the Trust for
financial reporting purposes is the fair value of the Bitcoin at the time of
contribution to the Trust. The Bitcoin cost basis recorded by the Trust may
differ from the value of the proceeds collected by the Sponsor from the sale of
the corresponding Units to investors.

Investment Company Considerations

The Trust is an investment company for GAAP purposes and follows accounting and
reporting guidance in accordance with the FASB ASC Topic 946, Financial Services
– Investment Companies. The Trust uses fair value as its method of accounting
for Bitcoin in accordance with its classification as an investment company for
accounting purposes. The Trust is not a registered investment company under the
Investment Company Act of 1940. GAAP requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates and these
differences could be material.

Review of Financial Results (unaudited)

Financial Highlights for the Three and Nine Months Ended September 30, 2021 and
2020

Three Months Ended September 30, Nine

Months Ended September 30,

2021 2020 2021 2020
Net realized and
unrealized (loss) gain
on investment in
Bitcoin $ 24,809,981 $ 2,222,669 $ 10,194,503 $ 4,940,233
Net (decrease)
increase in net assets
resulting from
operations $ 24,577,170 $ 2,166,767 $ 9,557,239 $ 4,821,457
Net assets $ 123,291,217 $ 15,175,464 $

123,291,217 $ 15,175,464

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Net realized and unrealized gain on investment in Bitcoin for the three months
ended September 30, 2021 was $24,809,981 which includes a realized loss of
$11,480 on the transfer of Bitcoins to pay the Sponsor’s Fee and other expenses
and net change in unrealized appreciation on investment in Bitcoin of
$24,821,461. Net realized and unrealized gain on investment in Bitcoin for the
period was driven by Bitcoin price appreciation from $34,764.81 per Bitcoin as
of June 30, 2021 to $43,529.16 per Bitcoin as of September 30, 2021. Net
increase in net assets resulting from operations was $24,577,170 for the three
months ended September 30, 2021, which consisted of the net realized and
unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $146,014 and
other expenses of $86,797, net of waivers. Net assets increased to $123,291,217
at September 30, 2021, a 25% increase for the period. The increase in net assets
resulted from the aforementioned Bitcoin price appreciation and capital
contribution of approximately 9.55 Bitcoin with a value of $384,982 to the Trust
in connection with Units issuance during the period, which was partially offset
by the Trust’s Net expenses of $232,811 for the period.

Net realized and unrealized gain on investment in Bitcoin for the three months
ended September 30, 2020 was $2,222,669 which includes a realized loss of $4,175
on the transfer of Bitcoins to pay the Sponsor’s Fee and other expenses to the
Sponsor and net change in unrealized appreciation on investment in Bitcoin of
$2,226,844. Net realized and unrealized gain on investment in Bitcoin for the
period was driven by Bitcoin price appreciation from $9,140.27 per Bitcoin as of
June 30, 2020 to $10,721.92 per Bitcoin as of September 30, 2020. Net increase
in net assets resulting from operations was $2,166,767 for the three months
ended September 30, 2020, which consisted of the net realized and unrealized
gain on investment in Bitcoin, less the Sponsor’s Fee of $37,441 and Other
expenses of $18,461. Net assets increased to $15,175,464 at September 30, 2020,
a 19% increase for the period. The increase in net assets resulted from the
aforementioned Bitcoin price appreciation and the contribution of approximately
28.03 Bitcoin with a value of $280,001 to the Trust in connection with Units
issuance during the period, which was partially offset by the Trust’s Net
expenses of $55,902 for the period.

Net realized and unrealized gain on investment in Bitcoin for the nine months
ended September 30, 2021 was $10,194,503 which includes a realized loss of
$72,220 on the transfer of Bitcoins to pay the Sponsor’s Fee and other expenses
and net change in unrealized appreciation on investment in Bitcoin of
$10,266,723. Net realized and unrealized gain on investment in Bitcoin for the
period was driven by Bitcoin price appreciation from $29,026.66 per Bitcoin as
of December 31, 2020 to $43,529.16 per Bitcoin as of September 30, 2021. Net
increase in net assets resulting from operations was $9,557,239 for the nine
months ended September 30, 2021, which consisted of the net realized and
unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $410,107 and
Other expenses of $227,157, net of waivers. Net assets increased to $123,291,217
at September 30, 2021, a 175% increase for the period. The increase in net
assets resulted from the aforementioned Bitcoin price appreciation and the
contribution of approximately 1,299.49 Bitcoin with a value of $68,827,296 to
the Trust in connection with Units issuance during the period, which was
partially offset by the Trust’s Net expenses of $637,264 for the period.

Net realized and unrealized gain on investment in Bitcoin for the nine months
ended September 30, 2020 was $4,940,233 which includes a realized gain of
$22,780 on the transfer of Bitcoins to pay the Sponsor’s Fee and other expenses
to the Sponsor and net change in unrealized appreciation on investment in
Bitcoin of $4,917,453. Net realized and unrealized gain on investment in Bitcoin
for the period was driven by Bitcoin price appreciation from $7,153.37 per
Bitcoin as of December 31, 2019 to $10,721.92 per Bitcoin as of September 30,
2020. Net increase in net assets resulting from operations was $4,821,457 for
the nine months ended September 30, 2020, which consisted of the net realized
and unrealized gain on investment in Bitcoin, less the Sponsor’s Fee of $94,941
and Other expenses of $23,835. Net assets increased to $15,175,464 at September
30, 2020, an 54% increase for the period. The increase in net assets resulted
from the aforementioned Bitcoin price appreciation and the contribution of
approximately 52.84 Bitcoin with a value of $516,872 to the Trust in connection
with Units issuance during the period, which was partially offset by the Trust’s
Net expenses of $118,776 for the period.

Off-Balance Sheet Arrangements

The Trust is not a party to any off-balance sheet arrangements.

Cash Resources and Liquidity

When selling Bitcoins and/or Additional Currency to pay Extraordinary Expenses,
the Sponsor endeavors to sell the exact number of Bitcoins and/or Additional
Currency needed to pay expenses in order to minimize the Trust’s holdings of
assets other than Bitcoin. As a consequence, the Sponsor expects that the Trust
will not record any cash flow from its operations and that its cash balance will
be zero at the end of each reporting period.

In exchange for the Sponsor Fee, the Sponsor has agreed to assume most of the
expenses incurred by the Trust. As a result, the only ordinary expense of the
Trust during the periods covered by this Quarterly Report was the Sponsor Fee.
The Trust is not aware of any trends, demands, conditions or events that are
reasonably likely to result in material changes to its liquidity needs.

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Selected Operating Data

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Bitcoins:

Opening balance 2,829.85 1,394.28 1,548.46 1,388.00

Purchases 9.55 28.03 1,299.49 52.84

Sponsor Fee, related
party (3.70) (3.49) (8.66) (22.02)

Custody and Index Fee (0.88) (1.72) (4.47) (1.72)
Closing balance 2,834.82 1,417.10 2,834.82 1,417.10

Accrued but unpaid
Sponsor Fee, related
party (1.14) (1.15) (1.14) (1.15)

Accrued but unpaid
Custody and Index Fee (1.30) (0.60) (1.30) (0.60)

Net closing balance 2,832.38 1,415.35 2,832.38 1,415.35
Number of Units:

Opening balance 8,312,486 4,052,472 * 4,529,312 * 3,980,128 *

Issuance 28,050 81,840 * 3,811,224 154,184 *
Closing balance 8,340,536 4,134,312 * 8,340,536 4,134,312 *

As of September 30,
2021 2020
NAV per Unit $ 14.78 $ 3.67
Bitcoin Market Price $ 43,529.16 $ 10,721.92
Bitcoin Holdings per Unit 0.00034 0.00034

* Units have been adjusted retroactively to reflect the 4:1 stock split effective

January 5, 2021.

Historical Digital Asset Holdings and Bitcoin Prices

As movements in the price of Bitcoins will directly affect the price of the
Units, investors should understand recent movements in the price of Bitcoin.
Investors, however, should also be aware that past movements in the Bitcoin
price are not indicators of future movements. Movements may be influenced by
various factors, including, but not limited to, government regulation, security
breaches experienced by service providers, as well as political and economic
uncertainties around the world.

The following chart illustrates the movements in the NAV and the Bitcoin Market
Price (referred to in the chart as “Market Price”) from the beginning of the
Trust’s operations on January 3, 2019 to September 30, 2021.

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The table below illustrates the movements in the Bitcoin Market Price since the
beginning of the Trust’s operations on January 3, 2019. Since the beginning of
the Trust’s operations to September 30, 2021 the Bitcoin Market Price has ranged
from $3,358.67 to $63,333.68, with the straight average being $18,862.34. The
Sponsor has not observed a material difference between the Bitcoin Market Price
and average prices from the constituent Bitcoin exchanges individually or as a
group.

Period Average High Date Low Date End of period
From January 3, 2019 to December
31, 2019 $ 7,379.15 $ 13,724.33

6/26/2019 $ 3,358.67 2/7/2019 $ 7,153.38
Twelve months ended December 31,
2020

$ 11,131.27 $ 29,026.66

12/31/2020 $ 4,956.92 3/16/2020 $ 29,026.66

Nine months ended September 30,
2021 $ 44,597.64 $ 63,333.68

4/15/2021 $ 29,785.71 7/20/2021 $ 43,534.56

January 3, 2019 (the inception
of the Trust’s operations) to
September 30, 2021 $ 18,862.34 $ 63,333.68 4/15/2021 $ 3,358.67 2/7/2019 $ 43,534.56

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Secondary Market Trading

The Trust’s Units have been quoted on OTC Markets since February 12, 2021, and
on OTCQX under the symbol OBTC since February 26, 2021. The price of the Units
as quoted on OTCQX (and OTC Markets) has varied significantly from the NAV per
Unit. From February 12, 2021 to September 30, 2021, the maximum premium of the
closing price of the Units quoted on OTCQX (and OTC Markets) over the value of
the Trust’s NAV per Unit was approximately 240% and the average daily premium
since the Units were first traded on OTC Markets on February 12, 2021 was
approximately 19%. As of September 30, 2021, the Trust’s Units were quoted on
OTCQX at a discount of approximately 12% to the Trust’s NAV per Unit.

The historical premium of the closing price of the Units quoted on OTCQX and OTC
Markets as compared with the NAV per Unit has varied, from a high of 240% on
February 16, 2021 (closing price $56.39 per Unit on OTCQX (and OTC Markets) and
NAV per Unit $16.58) to a low (i.e., discount) of -13% on September 20, 2021
(closing price $12.97 per Unit on OTCQX (and OTC Markets) and NAV per Unit
$14.89). The historical premiums and discounts at times reflect a material
deviation from the Bitcoin Market Price.

The following table sets out the range of high and low closing prices for the
Units as reported by OTCQX, the Trust’s NAV per Unit and the Trust’s Bitcoin
Holdings per Unit for the period from February 12, 2021 to September 30, 2021.

High Low
Bitcoin Bitcoin
Holdings per Holdings per
OTCQX NAV per Unit Unit OTCQX NAV per Unit Unit
2021
(through September 30, 2021) 56.39 21.58 0.00034 12.29 10.13 0.00034

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