Risks factors

Risks Factors

Investments in Participation Shares will involve certain risks associated with its investment strategy and there can be no assurance that the investment objectives of the Fund will be achieved.

Investors will not have an opportunity to select or value any of the investments of the Fund. The likelihood that investors will realise income or gain will depend on the skill and expertise of the Directors.

There may be a change in government regulation or policies that materially and adversely affect the Fund’s activities.

Prospective investors are recommended to review the PPM in its entirety before deciding whether to invest in Participation Shares and should specifically consider the following:

1. General Risk Factors

1. 1.1 Covid-19

As a result of the global outbreak of Covid-19, there will be changes to business and trade on a global scale and it is highly likely that there will be a global recession in the coming months and or years. The Directors believe that the Fund may be materially adversely affected by this, or by similar or other events in the future. Consequently, the Fund may not be capable of, or successful at, preserving the value of its assets, generating positive investment returns or effectively managing its risks.

2. 1.2 Loss of Investment

Any investment may not perform as well as forecast, either because of changes in the economic climate or otherwise, resulting in the total loss of the Fund’s investment.

3. 1.3 Listing of Fund’s Shares

The Fund’s shares have not been registered or listed in any jurisdiction and nor are they intended to be.

4. 1.4 Interest Rates

Increases in interest rates may increase the Fund’s interest expense in the case where leverage is used (see also the risk factor on “Leverage” below).

5. 1.5 Regulatory Supervision

The Fund operates as a private scheme within the meaning of section 293(4)(b) of the Financial Services Act 2019 and as such the investments of the Fund will not be monitored or supervised by any regulatory body and the Fund is not subject to the authority of any regulatory authority. However, the Fund’s Company Secretary is subject to the authority of the Financial Services Commission of Gibraltar (the “FSC”).

6. 1.6 Taxation

The Directors will attempt to structure the Fund in a manner that is tax efficient. However, there can be no assurance that such structure will be tax efficient in general or for any particular investor or that any particular tax result will be achieved. Tax consequences on a sale or refinancing of any assets may result

in conflicts of interest, and refinancing may trigger tax indemnification obligations. There also can be no assurance that the applicable tax authorities will not attempt to challenge and/or raise claims concerning the tax consequences resulting from the structure and/or the operation of the Fund. Further, in general, tax laws, treaties, rules and procedures are extremely complex and are subject to changes on a frequent basis that in some cases may reduce existing tax benefits, and may also have a retroactive effect.

Accordingly, each potential investor is urged to consult their own tax adviser regarding the applicability, effects and implications of the various tax laws with respect to such potential investment.

7. 1.7 7.7 FATCA (Foreign Account Tax Compliance Act) withholding tax

The FATCA provisions of the US Hiring Incentives to Restore Employment Act impose a new reporting regime and potentially a 30% withholding tax with respect to certain payments to an FFI that does not become a “Participating FFI” and is not otherwise exempt or deemed compliant. The Directors believe the Fund should be treated as an FFI for US FATCA purposes. Certain FFIs may be deemed compliant with US FATCA and report to their home authorities if their jurisdiction has entered into a Model 1 IGA with the U.S (as has been agreed by Gibraltar). The new withholding regime was phased in during a transitional period spanning the 2014 and 2015 calendar years.

Whilst most Reporting FFIs subject to a Model 1 IGA will not technically be subject to 30% withholding tax, registration and compliance is required to ensure that the Fund is not treated as a Non-participating FFI which will then be subject to 30% withholding on all, or a portion of all, payments received, directly or indirectly, from US sources or in respect of US assets including the gross proceeds on the sale or disposition of certain US assets. It is also recommended that the Fund register for reputational purposes and administrative ease to ensure that it does not run the risk of incorrectly being subject to 30% withholding. Any withholding imposed on the Fund will reduce the amounts available to the Fund to make payments to its investors and would also create an administrative burden by potentially having to claim refunds (where possible). By also complying with US FATCA, the Fund will minimise the impact of any future penalties becoming due as a result of non-compliance.

Though not strictly applicable to Reporting FFI’s operating under a Model 1 IGA, payments made after 31 December 2016 from non-US sources may also be subject to withholding to the extent that payments are attributable to US source income and assets. Any amount deducted or withheld as a result of noncompliance with US FATCA would have adverse cash flow implications. In these instances, the Fund may not be able to pay additional amounts as a result of the deduction or withholding and investors may receive a smaller than expected and/or delayed net investment return from the Fund.

As a Registered Deemed Compliant FFI, the Fund’s investors may be required to provide certain information to the Fund so that it may comply with its US FATCA reporting obligations. US FATCA is particularly complex and its application to the Fund may be subject to change in the future.

Each prospective investor should consult its own tax adviser to obtain a more detailed explanation of US FATCA and to learn how this legislation might affect the investor in its particular circumstance.

The Fund intends to become a Registered Deemed Compliant FFI for US FATCA purposes. For that purpose, the Fund has applied for and obtained a Global Intermediary Identification Number (“GIIN”). As a Registered Deemed Compliant FFI, the Fund will disclose to the relevant Gibraltar authorities information relating to US persons and entities covered by US FATCA.

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8. 1.8 Common Reporting Standards (CRS)

On 1 January 2016 the International Co-Operation (Improvement of International Tax Compliance) Regulations 2015 (“Gibraltar CRS Regulations”) came into force in Gibraltar. The Common Reporting Standard (“CRS”) is an information standard for the automatic exchange of information developed in response to the G20 request and approved by the OECD Council on 15 July 2014. The CRS requires jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. The CRS sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. The Directors understand that the Gibraltar CRS Regulations have similar rules and requirements to the Gibraltar US FATCA Regulations albeit the beneficiary in respect of reporting in relation to the Gibraltar CRS Regulations will be to the multiple tax authorities (as opposed to the IRS).

The Fund will act in accordance with the Gibraltar CRS Regulations and perform the required assessment of due diligence on financial accounts and report any reportable accounts (as and when applicable to do so).

9. 1.9 Reliance on the Directors

The success of the Fund will be dependent to a large extent on the efforts and skills of the Directors and his associates and/or investment managers if any. If the Fund were to lose the services of any of the Directors, the consequences to the Fund could be material or adverse. Furthermore, the Participation Shareholders may not vote in relation to electing a replacement director.

10. 1.10 Lack of Operating History

The Fund is recently formed and has no large operating history.

11. 1.11 Non-diversification Risk

If a particular investment by the Fund represents a relatively significant percentage of the Fund’s portfolio, the value of the portfolio will be more impacted by a loss on that investment than if the portfolio were more diversified.

12. 1.12 Security

The Fund may not be able to extend its existing credit arrangements, refinance its debt on substantially similar terms when it matures or obtain acquisition financing on financially attractive terms as and when needed.

13. 1.13 No Control Over the Operations of the Fund

Shareholders will have no control over the management of the business activities or affairs of the Fund. Consequently, an investor should not become a shareholder in the Fund unless it is willing to entrust the management of the Fund to the Directors.

14. 1.14 Lack of Separate Representation

Hassans International Law Firm Limited (“Hassans”) will act as Gibraltar counsel to the Fund in connection with the formation of the Fund and the securities offered and transactions contemplated hereby. Hassans is not representing any investors and is not rendering any legal advice to any prospective investors in connection with their investment in the Fund and the transactions contemplated hereby. Accordingly, prospective investors are strongly urged to consult their own tax and legal advisers with respect to the tax and other legal aspects of investment in the Fund and the transactions contemplated hereby, and with specific reference to their own personal financial and tax situation.

15. 1.15 Substantial Expenses

The Fund must pay various fees and other costs regardless of whether it is profitable. These costs include those at the level of the Fund and below the Fund at the level of any group companies which have been incorporated for the purposes of maximizing the tax efficiency of the Fund’s investments. The Fund must therefore generate significant net investment income in order to break even.

16. 1.16 Non-segregated share classes

The Fund is structured as a private company, therefore despite the possibility of having separate share classes with differing rights, they will not be statutorily separated or protected from each other.

17. 1.17 Forward Looking Statements

Certain statements in the Private Placement Memorandum constitute “forward-looking statements”.

When used in the Private Placement Memorandum or in any marketing material, the words “project”, “anticipate”, “believe”, “estimate”, “expect”, and similar expressions are generally intended to identify forward-looking statements. Such forward-looking statements, including the intended actions and performance objectives for the Fund, involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Fund to differ materially from any future results, performance or achievements expressed or implied by such forward- looking statements. All forward-looking statements in the Private Placement Memorandum or in any marketing material speak only as of the date hereof. The Fund and the Directors expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

2 Specific Risk Factors

1. 2.1 Investments in Crypto Assets - Overview

The investment characteristics of Crypto Assets differ from those of traditional currencies, commodities or securities. Investing in and/or trading Crypto Assets involves many risks and may not be suitable for all investors. When trading Crypto Assets, investors are generally not protected by any exchange rights and generally do not possess any shareholder or similar rights with respect to that issuing entity or organisation. Anyone looking to invest in Crypto Assets indirectly, through this Fund, should consult a fully qualified independent professional financial adviser.

The risks of investing in this Fund are high or very high. Several factors may influence the market price of tokens, including, but not limited to:

▪ Global supply of cryptocurrencies, both with respect to the number of different cryptocurrencies and the supply of each individual cryptocurrency;

▪ Global demand for cryptocurrencies, which can be influenced by the growth of acceptance of cryptocurrencies as payment for goods and services, the security of online cryptocurrency exchanges and digital wallets that hold cryptocurrencies, the perception that the use and holding of cryptocurrencies is safe and secure, and the regulatory restrictions on their use;

▪ Changes in software, software requirements or hardware requirements underlying blockchain technologies;

▪ Fiat currency withdrawal and deposit policies of cryptocurrency exchanges on which cryptocurrencies may be traded and liquidity on such exchanges;

▪ Interruptions in service from or failures of major cryptocurrency exchanges;

▪ Investment and trading activities of large investors, including private and registered funds, that may directly or indirectly invest in cryptocurrencies;

▪ Monetary policies of governments, trade restrictions, currency devaluations and revaluations; and

▪ Regulatory measures, if any, that affect the use of cryptocurrencies.

A decrease in the price of a single cryptocurrency may cause volatility in the entire cryptocurrency industry and may affect other cryptocurrencies. For example, a security breach that affects investor or user confidence in Bitcoin or Ethereum may affect the industry as a whole and may also cause the price of other tokens and other cryptocurrencies to fluctuate.

This leads to the risk of depreciation of the market portfolio. In addition, electronic wallets, on which crypto-currencies are stored, are the object of increased attention from hackers. This carries the risk of theft of the Fund’s property.

The risk of losing liquidity in some instruments may lead to the fact that operations will not be performed at the best prices, which may also affect the capitalization of the Fund's portfolio.

Large commissions of third parties (crypto-exchanges, brokers, safe asset keepers) can cause losses upon withdrawal from the Fund's Investors even if the index underlying the portfolio (benchmark) does not change or slightly increase. In addition, there are regulatory risks. Due to the unsettled regulatory practices and ambiguity with how the regulation of this segment of the financial world will be arranged in the future.

The regulator may revoke the license or prohibit transactions with crypto-loans to the prime broker, stock exchanges, prohibit the accounting of crypto assets, and also prohibit the activity of the fund itself.

In addition, crypto-currencies can be banned in some jurisdictions and investment in crypto is not suitable for investors in all jurisdictions.

2. 2.2 Market conditions

The Fund's strategy is based on the premise that Crypto Assets will be available to the Fund on terms and at prices considered favourable to the Directors. There is no assurance that any Crypto Asset can be acquired on favourable terms or at favourable prices or that the market for such Crypto Assets will grow and the value will appreciate. Any movement in prices of Crypto Assets is largely beyond the control of the Directors. Furthermore, private and professional investors and speculators invest and trade in Crypto Assets. These market participants may range from exchange-traded-funds, private investment funds, brokers and day-traders. Certain activity involving such Crypto Assets may require approvals, licenses or registration, which may serve as a barrier to entry of investors, thereby limiting the market for Crypto Assets. There is no assurance that the investment market for Crypto Assets will continue to grow.

3. 2.3 Subscriptions received in Crypto Assets during the Initial Subscription Period

If the Fund does not raise its minimum Subscription Amounts target during the Initial Subscription Period, the Fund will return any subscription funds back to the subscribers. For in-specie subscriptions received in the form of Crypto Assets, those same Crypto Assets will be returned to the relevant subscriber. Given the general volatility of Crypto Assets, the value of the subscriber’s Crypto Assets may have significantly reduced in value.

4. 2.4 Private keys

Crypto Assets are controllable only by the possessor of public and private keys, both of which are unique to the Crypto Asset in question, and relate to the local or online digital wallet in which the Crypto Assets are held. To the extent private keys relating to the Fund's Crypto Assets are lost, destroyed or otherwise compromised, the Fund will be unable to access the related Crypto Assets. Any loss of a private key or other Crypto Assets could adversely affect an investment in the Fund. Any loss of private keys relating to digital wallets used to store the Fund 's Crypto Assets could adversely affect an investment in the Fund.

5. 2.5 Third party wallets

The Fund may use third party wallet providers to hold the Fund's Crypto Assets. The Fund may have a high concentration of its Crypto Assets in one location or with one third party wallet provider, which may be prone to losses arising out of hacking, loss of passwords, compromised access credentials, malware, or cyber-attacks. The Fund is not required to maintain a minimum number of wallet providers to hold the Fund's Crypto Assets. The Fund may not do detailed information technology diligence on such third party wallet providers and, as a result, may not be aware of all security vulnerabilities and risks. Certain third party wallet providers may not indemnify the Fund against any losses of Crypto Assets. Crypto Assets held by third parties could be transferred into "cold storage", in which case there could be a delay in retrieving such Crypto Assets. The Fund may also incur costs related to third party storage. Any security breach, incurred cost or loss of Crypto Assets associated with the use of a third party wallet provider, may adversely affect an investment in the Fund.

6. 2.6 Theft and malicious attacks

Hackers or malicious actors may launch attacks to steal, compromise, or secure Crypto Assets, such as by attacking the applicable blockchain network source code, exchange servers, third-party platforms, cold and hot storage locations or software, or Crypto Assets transaction history, or by other means. As the Fund increases in size, it may become a more appealing target of hackers, malware, cyber-attacks or other security threats. At this time, there is no governmental, regulatory, investigative, or prosecutorial authority or mechanism through which to bring an action or complaint regarding missing or stolen Crypto Assets. Consequently, the Fund may be unable to replace missing Crypto Assets or seek reimbursement for any theft, adversely affecting an investment in the Fund.

7. 2.7 Insurance risk

Unlike bank accounts or accounts at some other financial institutions, Crypto Assets are uninsured. Thus, in the event of loss or loss of utility value, there is no public insurer or private insurer to offer recourse.

Crypto Asset exchanges and custodians are generally not insured. Therefore, if the Fund experiences difficulties with such providers, or the providers with whom the Fund’s Crypto Assets are attacked by cyber-criminals, the Fund may be unable or find it very difficult to recover the Crypto Assets held with such providers.

8. 2.8 Volatility in price

The price of Crypto Assets and their derivatives is affected by many factors including global supply and demand, the expected future price, inflation expectations, interest rates, currency exchange rates, fiat currency withdrawal and deposit policies at Crypto Asset exchanges, interruptions in service or failures of major Crypto Asset exchanges, investment and trading activities of large investors, government monetary policies, regulatory measures that restrict the use, issue, transfer and holding of Crypto Assets and global political, economic or financial events. Any change in the value of Crypto Assets within the Fund’s portfolio may materially impact the Fund.

Speculators and investors who seek to profit from trading and holding Crypto Assets will generate a significant portion of demand for Crypto Assets. Speculation in relation to Crypto Assets regarding future appreciation in the value of such assets may inflate and make more volatile the price of Crypto Assets. As a result, such Crypto Assets may be more likely to fluctuate in value due to changing investor confidence in future appreciation in the price of such Crypto Assets rather than true capital appreciation. In the event the price of particular Crypto Assets declines, the value of the Fund would most likely also decline.

Currently, there is relatively modest use of Crypto Assets in the retail and commercial marketplace compared to its use by speculators, thus contributing to price volatility that could adversely affect an investment in the Fund. If future regulatory actions or policies limit the ability to own or exchange Crypto Assets in the retail and commercial marketplace, or use them for payments, or own them generally, the price and demand for Crypto Assets may decrease. Such decrease in demand may result in the termination and liquidation of the Fund at a time that may be disadvantageous to Shareholders or investors, or may adversely affect the Net Asset Value of the Fund.

9. 2.9 Regulatory regime

The regulatory regime of Crypto Assets, Blockchain technologies, ICOs and Crypto Asset exchanges is undeveloped, varies significantly among jurisdictions and is subject to significant uncertainty. Some enterprises that the Fund may invest in may operate in industries in which there are significant regulatory concerns. Various legislative and executive bodies are currently considering, or may in the future consider, laws, regulations, guidance, or other actions, which may severely impact the Fund’s ability to invest, or its ability to gain market share. Failure by the Directors to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation and may be subject to change, could result in adverse consequences, including civil penalties and fines. It is possible that any jurisdiction may, in the near or distant future, adopt laws, regulations, policies or rules directly or indirectly affecting the Bitcoin network, generally, or restricting the right to acquire, own, hold, sell, convert, trade, or use Crypto Assets, or to exchange Crypto Assets for either fiat currency or other Crypto Assets. Developments in regulation may alter the nature of the Fund's business or restrict the use of Blockchain assets or the operation of a Blockchain network upon which the Fund relies in a manner that adversely affects the Fund. Any additional regulatory obligations may cause the Fund to incur extraordinary, non-recurring expenses, and/or ongoing compliance expense, possibly affecting an investment in the Fund in an adverse manner. If the Fund determines not to comply with such regulatory requirements, the Fund may be liquidated at a time that is disadvantageous to an investor in the Fund.

To the extent the Fund limits or reduces the scope of certain activities, investors’ rights or investment initiatives, in order to limit the applicability of government regulation and supervision, investment in the Fund may be adversely affected.

10. 2.10 Lack of regulation

At present, most Crypto Assets, their exchanges, brokers and other counterparties are unregulated by domestic or foreign governments. Therefore, such exchanges, brokers and counterparties may be more exposed to fraud, theft, financial failure and / or hacker attacks relative to regulated exchanges, which would materially affect the Fund. In addition to being unregulated, most Crypto Assets are decentralised. As such, the developers and programmers behind the Crypto Assets could propose amendments that, if accepted by the network, would adversely affect valuation of the Fund's holdings of such Crypto Assets.

The Fund would have no ability to challenge such amendments. Similarly, many Crypto Assets rely on developers and programmers to monitor the safety and efficacy of the protocols behind such Crypto Assets. A failure to properly monitor and upgrade the protocol could damage the value of the Crypto Assets, as applicable, and the Fund would have no recourse.

11. 2.11 Settlement risk

When trading Crypto Assets, “delivery versus payment” is not possible. Since several parties and their correspondent banks are involved in the trading and settlement process, (partial) outages or delayed instructions/transactions by parties or their correspondent banks during the settlement of transactions may lead to a partial or complete loss of the sum invested. Due to the lack of clearing houses, pay as paid business is not possible, which leads to the risk that even though the payment has been made, the delivery of the corresponding Crypto Assets may be delayed, may be partial only or may not occur at all.

12. 2.12 Disruptions

The exchanges on which Crypto Assets trade are relatively new and largely unregulated and may therefore be more exposed to theft, fraud, and failure than established, regulated exchanges for other products. Exchanges generally require cash to be deposited in advance in order to purchase Crypto Assets, and no assurance can be given that those deposit funds can be recovered. Additionally, upon the sale of Crypto Assets, cash proceeds may not be received from the exchange for several business days.

Participation in exchanges requires users to take on credit risk by transferring Crypto Assets from a personal account to a third-party's account. The Fund will take the credit risk of an exchange every time it transacts.

Any financial, security or operational difficulties experienced by Crypto Asset exchanges may result in an inability of the Fund to recover money, Crypto Assets being held by the exchange, or to pay investors upon redemption. Additionally, to the extent that a Crypto Asset exchange represents a substantial portion of the volume in particular Crypto Assets trading are involved in fraud or experience security failures or other operational issues, such exchanges' failures may result in loss or less favorable prices of a particular Crypto Asset, or may adversely affect the Fund, its operations and investments, or investors.

Crypto Assets are traded on networks that have been subject to cybercrime, computer malware and hacking attempts. If a security breach occurred to a Crypto Asset exchange, that breach could adversely affect the Fund.

Crypto Asset exchanges may even shut down or go offline voluntarily, without any recourse to investors.

Currently, no specific regulatory protections exist in Gibraltar that would protect investors from financial losses if an exchange platform that exchanges or holds Crypto Assets is hacked, fails, or goes out of business. In many of these instances, the customers of such exchanges have not been compensated or made whole for the partial or complete loss of their account balances. Consequently, an exchange may be unable to replace missing Crypto Assets or seek reimbursement for any theft of Crypto Assets, adversely affecting investors and investment in the Fund.

13. 2.13 No warranties

Crypto Asset exchanges typically do not guarantee or warrant their websites or electronic platforms will be uninterrupted, without delay, error-free, omission-free, or free of viruses. Therefore, information and services provided by Crypto Asset exchanges are typically provided “as is” without warranties of any kind, express or implied, including accuracy, timeliness, and completeness.

14. 2.14 Changing security needs

Safeguarding Crypto Assets are of primary concern, but the Directors may be unable to foresee or address technological changes required to protect certain Crypto Assets from theft, loss or destruction. Any theft, loss or destruction of Crypto Assets could materially harm the Fund.

15. 2.15 No central bank guarantee

Crypto Assets that operate as a medium of exchange are not issued or guaranteed by any central bank or a national, supra-national, or quasi-national organization, and there is no guarantee that such Crypto Assets may operate as a legal medium of exchange in any jurisdiction. In fact, certain jurisdictions have completely prohibited the usage of certain Crypto Assets in such jurisdictions.

16. 2.16 Third-party usage

Crypto Assets are a new product and are not yet widely adopted as a means of payment for goods and services. Banks and other established financial institutions may refuse to process funds for Crypto Asset transactions, process wire transfers to or from Crypto Asset exchanges, Blockchain-related companies or service providers, or maintain accounts for persons or entities transacting in Crypto Assets.

17. 2.17 Risks with respect to miners

Certain Crypto Assets rely on “miners” to create the Crypto Assets and to record transactions. If the miners are not appropriately incentivized to perform these actions, they may stop and the recording of transactions could slow or stop. Miners ceasing operations could adversely impact the price of the Crypto Assets and also reduce the collective processing power on the Blockchain network, adversely affect the validation process for transactions, and, generally, make the network more vulnerable. Further, if a single miner or a mining pool gains a majority share in a given Blockchain network's computing power, the integrity of the Blockchain may be affected. A miner or mining pool could reverse transactions of such Crypto Asset, make double-spend transactions, prevent confirmations or prevent other miners from mining valid blocks. Each of these scenarios could reduce confidence in the validation process or processing power of the network, and adversely affect an investment in the Fund.

18. 2.18 Miners’ collusion

Miners, functioning in their transaction confirmation capacity, usually collect fees for each transaction they confirm. Miners validate unconfirmed transactions by adding the previously unconfirmed transactions to new blocks in the Blockchain. Miners are not forced to confirm any specific transaction, but they are economically incentivised to confirm valid transactions as a means of collecting fees. Miners have historically mined for relatively low transaction confirmation fees, because miners have a very low marginal cost of validating unconfirmed transactions. If miners collude in an anticompetitive manner to reject low transaction fees, then Crypto Asset owners and users could be forced to pay higher fees, thus reducing the attractiveness of the Crypto Asset network. Mining occurs globally and it may be difficult for authorities to apply antitrust regulations across multiple jurisdictions. Any collusion among miners may adversely impact the attractiveness of the network and may adversely impact an investment in the Fund or the ability of the Fund to operate.

19. 2.19 Risk of blockchain “forks” and obsolescence of technology

Most Crypto Assets, where applicable, software and protocol are open source. Any user can download the software, modify it and then propose that Crypto Asset users and miners adopt the modification.

When a modification is introduced and a substantial majority of users and miners consent to the modification, the change is implemented and the Crypto Asset network remains uninterrupted. However, if less than a substantial majority of users and miners consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” (i.e., “split”) of the Crypto Asset network (and the Blockchain), with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the Crypto Asset network running in parallel, but with each version’s Crypto Asset (the assets) lacking interchangeability. Additionally, a fork could be introduced by an unintentional, unanticipated software flaw in the multiple versions of otherwise compatible software users run. Although chain forks would likely be addressed by community-led efforts to merge the two chains (and in fact, several prior historical forks have been so merged), such a fork could adversely affect the Crypto Asset’s viability. A Crypto Asset fork could adversely affect an investment in the Fund or the ability of the Fund to operate.

Many Crypto Assets and the technology underlying them are relatively new and development of such technology is proceeding on a continuous basis. As a result Crypto Assets bear the risk of obsolescence.

This may arise where the underlying technology, such as the Blockchain, is significantly altered or a new superior technology is created, resulting in existing technology and Crypto Assets becoming obsolete and ceasing to bear value. Such obsolescence could have a material adverse effect on the investments of the Fund and the Fund’s performance may be materially impacted thereby.

20. 2.20 Risk of intellectual property rights claims

Third parties may assert intellectual property claims relating to the holding and transfer of Crypto Assets and related source code. Any threatened action could adversely affect the value of the Fund. Any successful action could force the bankruptcy and liquidation of the Fund.

21. 2.21 Bad actors

There exists the possibility that while acquiring or disposing of Crypto Assets, the Fund unknowingly engages in transactions with bad actors who are under the scrutiny of government investigative agencies.

As such, the Fund's systems or a portion thereof may be taken off-line pursuant to legal process such as the service of a search and/or seizure warrant. Such action could result in the loss of Crypto Assets previously under the Fund's control.

Moreover, the source code used to form the Bitcoin is attributed to "Satoshi Nakamoto" a pseudonym to a presently unidentified individual or group of individuals who may be acting alone or in concert with a government, government organization or group with malevolent tendencies. As such, only the portions of the source code that have been made public have been analysed with regards to operation, ability to generate Bitcoin, and to conduct transactions in the previously described manner. There may exist an unseen portion of the original code wherein a pre-existing sub-routine and/or virus has been placed which will activate at a future time (determined by the original code writer(s)) causing disruptions to the blockchain and/or resulting in substantial losses, theft of Bitcoin, unauthorised transactions and the issuance of duplicate Bitcoin. Further, since the identity of the original code writer(s) is not known, one cannot discount the possibility of the same unknown individual(s) inserting and/or activating a sub-routine or artefact allowing said person(s) to manipulate a portion of the Bitcoin programming and/or blockchain itself to the benefit of this individual(s) (i.e., by programming a portion of each Bitcoin to transfer to such individual's Bitcoin wallet).

22. 2.22 Money laundering

Transactions in Crypto Assets may be misused for criminal activities, including money laundering.

Transactions in Crypto Assets are public, but the owners and recipients of these transactions generally are not. Transactions are largely untraceable and provide Crypto Asset consumers with a high degree of anonymity. It is therefore possible that the Crypto Asset network will be used for transactions associated with criminal activities, including money laundering. This misuse could affect investors, as law enforcement agencies may decide to close exchange platforms and prevent investors from accessing or using any funds that the platforms may be holding for them. Transacting with a counterparty making illicit use of Crypto Assets could have a material adverse effect on the Fund.

7.40 Irreversible and incorrectly executed transactions

Most Crypto Asset transactions are irreversible without the consent and active participation from the recipient of the transaction. Once a transaction has been recorded on the Blockchain, an incorrect transfer or theft of the Crypto Asset, as applicable, will not be reversible, and the Fund may not be able to seek compensation for such transfers or theft.

23. 2.23 7.41 Sales of newly mined Crypto Assets

A typical method to create certain Crypto Assets is through a process referred to as “mining,” and such Crypto Assets are referred to as “newly mined” Crypto Assets. If entities engaged in mining choose not to hold the newly mined Crypto Assets, and, instead, make them available for sale, there can be downward pressure on the price of such Crypto Assets. A mining operation may be more likely to sell a higher percentage of its newly created Crypto Assets, and more rapidly so, if it is operating at a low-profit margin, thus reducing the price of the Crypto Assets. Lower Crypto Asset prices may result in further tightening of profit margins for miners and worsening profitability, thereby potentially causing even further selling pressure. Decreasing profit margins and increasing sales of newly mined Crypto Assets could result in a reduction in the price of such Crypto Assets, which could adversely impact an investment in the Fund.

24. 2.24 Crypto Assets have a short history

The first implementation of a Crypto Asset was Bitcoin, which was released in 2009. Crypto Assets and their trading history thus have existed for a relatively short time, which limits a potential investor’s ability to evaluate an investment in the Fund.

25. 2.25 Decline in the adoption of Crypto Assets

As a new asset and technological innovation, the Crypto Assets industry is subject to a high degree of uncertainty. The adoption of Crypto Assets will require growth in their usage and in the Blockchain, the general ledger of certain Crypto Asset transactions, for various applications. Adoption of Crypto Assets will also require an accommodating regulatory environment.

In addition, there is no assurance that Crypto Assets will maintain their value over the long-term. The value of Crypto Assets is subject to risks related to their usage. Even if growth in Crypto Asset adoption, beyond current levels, occurs in the near or medium-term, there is no assurance that Crypto Asset usage will continue to grow over the long-term. A contraction in use of Crypto Assets may result in increased volatility or a reduction in the price of Crypto Assets, which would adversely impact the value of the Fund.

26. 2.26 Failure to properly monitor and upgrade a Crypto Asset protocol

A Crypto Asset protocol typically runs on open source software that can be altered. The Crypto Asset protocol could contain unknown flaws, which, upon detection by a malicious actor, could be used to damage the Crypto Asset network. To the extent that software developers involved in maintaining the Crypto Asset protocol are unable to address potential flaws in the Crypto Asset protocol adequately and in a timely manner, the industry may be adversely affected and any such result could adversely affect an investment in the Fund.

27. 2.27 Disruption of the Internet

The Crypto Assets network’s functionality relies on the internet. A significant disruption of internet connectivity (i.e., affecting large numbers of users or geographic regions) could prevent the network’s functionality and operations until the internet disruption is resolved. An internet disruption could adversely affect an investment in the Fund or the ability of the Fund to operate.

28. 2.28 Demand of Bitcoin

Bitcoin is currently the most dominant Cryptocurrency, and the block reward for Bitcoin may decrease over time. Bitcoin was designed to ensure that there would never be more than 21 million Bitcoins in existence, and that the reward for mining Bitcoins halves after every 210,000 new blocks. The current estimate is that there will be no new Bitcoins after 2140. As the block reward decreases over time, either the requirement from miners of higher transaction fees in exchange for recording transactions in the Blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for Bitcoin and prevent the expansion of the Bitcoin network to retail merchants and commercial businesses, resulting in a reduction in the net asset value. To the extent that any miners cease to record transactions in solved blocks, transactions that do not include the payment of a transaction fee will not be recorded on the Blockchain until a block is solved by a miner who does not require the payment of transaction fees. Any such delays in the recording of transactions could result in a loss of confidence in the Bitcoin network, decrease demand for Bitcoin may adversely affect its price, which may adversely affect the Crypto Asset market, which, in turn, may adversely affect an investment in the Fund.

29. 2.29 Widespread delays in recording Crypto Asset transactions

Most Crypto Assets rely on miners to create the Crypto Assets and to record transactions. To the extent that miners cease to record transactions in newly created blocks, such transactions will not be recorded on the Blockchain. In a newly formed block, miners can include as few as zero transactions (e.g., an “empty block”) or as many as several thousand transactions. Currently, there are no known incentives for miners to elect to exclude the recording of transactions in newly created blocks. However, to the extent that any such incentives arise, or if miners are no longer properly incentivised to record transactions, actions or inactions of miners could delay the recording and confirmation of transactions on the Blockchain. Any systemic delays in the recording and confirmation of transactions on the Blockchain could result in greater risk of fraudulent activity, and a loss of confidence in Crypto Assets, which could adversely impact an investment in the Fund or the ability of the Fund to operate.

30. 2.30 Early adopters controlling large amounts of existing Crypto Assets

There is no registry showing which individuals or entities own Crypto Assets or the quantity of Crypto Assets owned by any particular person or entity. It is possibly, and in fact, reasonably likely, that a small group of early Crypto Asset adopters hold a significant proportion of the Crypto Assets that has thus far been created. There are no regulations in place that would prevent large holders of Crypto Assets from selling their Crypto Assets. Such sales may adversely affect the price of Digital; Assets and an investment in the Fund.

31. 2.31 Competition from other methods of investing in Crypto Assets

The Fund will compete with direct investments in Crypto Assets and other potential financial vehicles, possibly including other securities backed by or linked to Crypto Assets and exchange traded products similar to the Fund. Market and financial conditions, and other conditions beyond the Fund’s control, may make it more attractive to invest in other financial vehicles or to invest in Crypto Assets directly, which could limit the market for the Fund and reduce the liquidity of the Fund.

32. 2.32 Large-scale sales of Crypto Assets

Political or economic events, either domestically or in foreign jurisdictions, may motivate large-scale buys or sales of Crypto Assets. Large-scale Crypto Asset sales may result in a decline in the price of Crypto Assets, which may adversely affect an investment in the Fund.

33. 2.33 Tax and accounting standards

The tax and accounting standards for Crypto Assets is evolving in many jurisdictions and the Fund’s trading and investment in Crypto Assets may have tax and accounting implications, which the Fund may not appropriately predict in advance and/or account for. Additionally, application of tax laws and regulations may result in increased, ongoing costs, or accounting related expenses, adversely affecting an investment in the Fund. The Fund may be affected directly by new tax rules in Gibraltar or indirectly by taxes applied in jurisdictions outside Gibraltar and which impact the Crypto Assets of the Fund.

34. 2.34 The Fund’s acquisition and sale of Crypto Assets

If the number of Crypto Assets acquired by the Fund is large enough relative to global supply and demand of such Crypto Assets, it could have an impact on the supply of and demand for such Crypto Assets in a manner unrelated to other factors affecting the global market for such Crypto Assets. Such an impact could affect the Crypto Asset exchanges, which would directly affect the price at which such Crypto Assets are traded on the exchanges.

35. 2.35 Lack of transparency

Given the type and extent of the security measures necessary to adequately secure Crypto Assets, Investors may not fully know how the Fund stores or secures its Crypto Assets or the Fund's complete holding of Crypto Assets at any time.

36. 2.36 Trade errors

The Fund may on occasion experience errors with respect to trades made on its behalf in respect of Crypto Assets. Trade errors may include, for example, (i) the placement of orders (either purchases or sales) in excess of the amount of Crypto Assets the Fund intended to trade; (ii) the sale of Crypto Assets when it should have been purchased; (iii) the purchase of Crypto Assets when it should have been sold; (iv) the purchase or sale of Crypto Assets contrary to regulatory restrictions or Fund investment guidelines or restrictions; (v) incorrect allocations of trades; and (vi) keystroke errors that occur when entering trades into an electronic trading system. Trade errors may result in losses or gains. The Directors generally will endeavor to detect trade errors prior to settlement and correct and/or mitigate them in an expeditious manner. However, this may not be practicable with respect to Crypto Assets. To the extent an error is caused by a counterparty, the Directors will use reasonable endeavors to seek to recover any losses associated with such error from the counterparty.

37. 2.37 Risk of losing access to Crypto Assets due to loss of private keys

Crypto Assets purchased by the Fund may be held in a digital wallet which requires a private key or a combination of private keys for access. Accordingly, the loss of the private key(s) will result in the loss of such Crypto Assets. Moreover, any third party that gains access to the such private key(s), including by gaining access to login credentials of a hosted wallet or vault service used, may be able to misappropriate the Fund’s Crypto Assets.

38. 2.38 Computer systems failures

The primary investment objective is highly dependent on the proper functioning of the information technology systems and processes of the Directors, electronic trading platforms, exchanges, data providers, service providers, and market infrastructure. In addition, such strategies are highly dependent on establishing reliable electronic communication links between the above parties. 

Accordingly, any information technology or communication systems degradation or failure at any of the above parties or their respective contractors could lead to errors, delays or disruptions in the trading process. Any such errors, consequential errors, delays or inabilities to trade (even for a short period), could, in certain market conditions cause an investment in the Fund to experience significant losses or to miss significant trading opportunities.

In addition, any information technology or communication systems degradation or failure could lead to materially detrimental consequences for the Fund including holding erroneous positions, experiencing significant trading losses, failing to comply with trading limits and regulations as well as failing to comply with risk limits which may adversely impact the performance of an investment in the Fund.

39. 2.39 Investment strategy

The investment strategy of the Fund has only been tested for a short period of time. There is no assurance that the investment strategy will produce positive returns in the future.

40. 2.40 Reliance on banks

The banking sector has been slow to enter into the crypto space. Only a limited number of banks are willing to open bank accounts for crypto-related businesses. The Fund’s bank may come under increased pressure from its correspondent banks who may refuse to provide services to banks that open bank accounts for crypto-related businesses. This may directly affect the running of the Fund, payment of its service providers, acceptance of subscriptions or satisfaction of redemption requests.

41. 2.41 System Failures

The Fund is using an Internet-based or other electronic system to place trades with the assistance of an automated algorithm, and some part of the system could fail. In the event of a system failure, it is possible that, for a certain time period, the Fund may not be able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. A system failure may also result in loss of orders or order priority.

42. 2.42 Speculative Position Limits

Some exchanges have established speculative position limits that govern the maximum position that any person may hold or control. It is possible that the Fund may have to modify trading strategies or liquidate positions in order to avoid exceeding speculative position limits. Such modification or liquidation, if required, could adversely affect the Fund's objective to achieve capital appreciation.

43. 2.43 Human intervention in the algorithmic trading software’s performance

The Fund holds the option to interfere with the algo-trading software by placing manual orders and/or disconnecting the software’s operation for any amount of time in its discretion. Although such options are necessary in order to mitigate some of the risks mentioned above, the personnel interfering with the algo-trading software may make decisions that are inconsistent with the Fund’s then current strategy as a result of an error in judgement and this may lead to avoidable losses.

44. 2.44 Difficulty in detecting errors

There is no warranty or assurance that the development of the algo-trading software or any associated hardware will be uninterrupted or error-free, and there is an inherent risk that the software could contain defects, weaknesses, vulnerabilities, viruses or bugs which may result in substantial loss for the Fund.

Moreover, if an error in algo-trading software is not address before the software is being upgraded, rolled back, before features added to the software, or before any other developer work is carried out in respect of the software, it may become more difficult to successfully identify and address the error.

45. 2.45 Limited Redemption and Transfer Rights

The Fund provides for limited opportunities for redemptions or transfer of interests and the Directors may impose further restrictions on redemptions and transfers. Accordingly, the Offered Shares should only be acquired by investors willing and able to commit their assets for an appreciable period of time.

46. 2.46 We are dependent on our key personnel.

Our success is largely dependent on the expertise of our Directors and other key individuals dedicated to the establishment and operations of the Fund. Our growth and development will depend, to a large extent, on our ability to retain the services of our key personnel, who have extensive experience in our businesses and target industries. If we are unable to retain our key personnel or continue to hire and retain such skilled personnel, our business, results of operations and ability to compete may be adversely affected. Any departures of such personnel without suitable and timely replacements could also disrupt our business and may result in the loss of additional personnel. Our on-going and future success is also dependent on the entrepreneurs in each of our portfolio companies.

47. 2.47 Management Risk.

The success of the Fund’s Investments is subject to the ability of the Directors and Investment Manager to achieve the investment objectives. The Directors and Investment Manager are generally not liable to any investor for losses incurred by the Fund.

48. 2.48 Non-Diversification Risk.

The Fund’s investment portfolio may be confined to investments in relatively few companies, industries and sectors. In addition, if any of the Fund’s Investments represents a significant percentage of the Fund’s portfolio, the value of the portfolio will be more impacted by a loss on that investment than if the portfolio were more diversified.

THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE A COMPLETE EXPLANATION OF THE RISKS

PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE PPM AND CONSULT WITH THEIR PROFESSIONAL ADVISERS BEFORE DETERMINING WHETHER TO INVEST IN THE FUND.