WisdomTree Issuer X Limited
Registered No: 129881
Annual Report and Financial Statements for the
year ended on 31 December 2023
Management and Administration
1
Directors’ Report
2-9
Statement of Directors’ Responsibilities
10
Independent Auditor’s Report
11-19
Statement of Profit or Loss and Other Comprehensive Income
20
Statement of Financial Position
21
Statement of Cash Flows
22
Statement of Changes in Equity
23
Notes to the Annual Financial Statements
24-49
www.wisdomtree.eu
Directors
Administrator
Registered Office
Registrar
Manager
Trustee
Custodians
Company Secretary
Auditor
Jersey Legal Advisers
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The directors of WisdomTree Issuer X Limited (“Issuer X” or the “Company”), submit herewith the annual report
and audited financial statements of the Company for the year end 31 December 2023. The comparative period
is for the year ended 31 December 2022.
Directors
The names and particulars of the directors of the Company during the year and up to date of this financial
statement are:
Directors’ Interests
No director has an interest in the Shares of the Company or Digital Security as at the date of this report.
Principal Activities
The Company’s principal activity is the issue and listing of securities (“Digital Securities”) that track the
performance of digital currencies.
The Company provides exposure to Single Digital Asset backed products such as:
WisdomTree Physical Bitcoin
WisdomTree Physical Ethereum
WisdomTree Physical Polkadot
WisdomTree Physical Cardano
WisdomTree Physical Solana
The Company also offers exposure to a combination of Digital Assets through the following Digital Securities
(collectively referred to as the “Baskets”):
WisdomTree Physical Mega Cap Equal Weight offers exposure to a combination of:
Bitcoin
Ethereum
WisdomTree Physical Crypto Market offers exposure to a combination of :
Bitcoin
Ethereum
Bitcoin Cash
Litecoin
Solana
Cardano
Polkadot
Avalanche
Polygon Matic
Cosmos
WisdomTree Physical Crypto Altcoins offers exposure to a combination of:
Bitcoin Cash
Litecoin
Solana
Cardano
Polkadot
Avalanche
Polygon Matic
Cosmos
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Principal Activities (continued)
The Baskets are subject to rebalancing due to their composition. Digital Securities can be issued to or
redeemed by Authorised Participants (the “AP”). An eligible AP is a securities house or other market
professional approved by the Company and with which the Company has entered into an Authorised
Participant Agreement with, at its absolute discretion. The Company launched Staking of WisdomTree Solana
As of 3 May 2022 and WisdomTree Ethereum as of 21 August 2023 through Coinbase Custody Trust Company,
LLC (“Coinbase Custody”).
Digital Securities allow investors to gain exposure to digital currencies without needing to take delivery of those
digital currencies. It also allows investors to buy and sell their interest through the trading of a security on the
SIX Swiss, Euronext Paris, Euronext Amsterdam and Xetra Stock Exchanges and any other exchange to which
that security may be admitted to trading from time to time. A Digital Security is an undated secured limited
recourse debt obligation of the Company, constituted by a trust instrument. Under the terms of this trust
instrument the Digital Securities are secured on an amount of digital currency or combination of digital
currencies equivalent to the entitlement to that digital currency (the “Digital Asset”) in respect of each Digital
Security (referred to as the “Entitlement”), which is calculated in accordance with an agreed formula published
in the Prospectus. The Digital Assets are held in custody by designated custodians or their sub-custodians and
are the subject of fixed and floating charges in favour of the Trustee. A holder of a Digital Security may facilitate
the redemption of that Digital Security through an Authorised Participant and in certain circumstances may be
compulsorily redeemed by the Company or in the event where there is no Authorised Participant in the market,
directly by the holder of the Digital Security. The amount of Digital Assets equal to the Entitlement on the date of
redemption (and subject to applicable order fees).
The Company earns a management fee by reducing the Entitlement of each class of Digital Security on a daily
basis by an agreed amount (the “Management Fee”). The Management Fee is calculated with reference to, and
settled in the form of digital currency.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company, (including marketing) as well as the payment of costs relating
to the listing and issue of Digital Securities. In return for these services, the Company has an obligation
to remunerate ManJer with an amount equal to the aggregate of the Management Fees, order fees and 25% of
staking income (the “ManJer Fee”). The Digital Assets in respect of the Management Fee are transferred by
the Trustee from the Company’s Custodian accounts directly to ManJer. In addition, the monetary amounts in
respect of the order fees are transferred from the subscribing investor directly to ManJer and there are no cash
flows through the Company.
Review of Operations
The most recent Prospectus was issued on 10 July 2023. The table below provides the respective launch
dates for each class of digital security offered by the Company together with the listing date per exchange.
As at 31 December 2023, the amount of Digital Assets under management amounted to USD 410.2 million (31
December 2022: USD 134.3 million). The Company recognises its assets (Digital Assets) at revalued amounts
and financial liabilities (Digital Securities) at fair valued amounts in the Statement of Financial Position.
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Review of Operations (continued)
The Company holds Digital Assets to support the Digital Securities as determined by the Entitlement. The
Company has entered into contractual obligations to issue and redeem Digital Securities in exchange for Digital
Assets as determined by the Entitlement of each class of Digital Security on each trading day. The value of the
Digital Assets in respect of each creation and redemption is recorded using the price on the transaction date.
The fair value of digital assets under management as at 31 December amounted to:
Bitcoin
7,272
6,432
106,736,744
IFRS 13 requires the Company to identify the principal market for its assets and liabilities, and to utilise the
available price within that principal market.
The directors consider the exchanges where the Digital Assets may be traded to constitute markets, and the
principal market is an exchange where:
The Company is not restricted from establishing a trading relationship with the exchange;
The exchange publishes independent prices; and
The exchange meets a number of the Company’s pre-set eligibility criteria (including reliability of
published data, and the greatest trading volumes, particularly in exchanging the underlying Digital
Assets for US Dollars, being the functional currency for financial reporting purposes).
In terms of IFRS 13, paragraph 17, the market in which the entity would normally enter into a transaction to sell
the asset or to transfer the liability is presumed to be the principal market. During the period the company
executed all trades in relation to portfolio rebalancing through Coinbase and it is therefore regarded as its
principal market.
As a result, the Digital Assets are revalued to fair value using the exchange price for that digital asset, published
by an exchange meeting those requirements (the “Quoted Price”). During the period (and subsequently to the
date of this report) the exchange considered by the directors to meet these requirements is Coinbase, Inc.
(“Coinbase”). A gain on Digital Assets is recognised in Other Comprehensive Income however, a gain shall be
recognised in Profit or Loss to the extent that it reverses a revaluation decrease of the same asset previously
recognised in Profit or Loss and an overall loss on Digital Assets is recognised in Profit or Loss (refer to note 2).
In addition, the directors consider the stock exchanges where the Digital Securities are listed to be the principal
market and as a result the fair value of the Digital Securities is the on-exchange price as quoted on those stock
exchanges demonstrating the greatest volume of active trading. The gain or loss on Digital Securities is
recognised through Profit or Loss in line with the Company’s accounting policy.
The revalued amounts resulted in a Loss for the period of USD 123,048,834 (2022 USD income of
108,478,633), and Other Comprehensive Income for the period of USD 117,745,301 (2022 USD loss of
114,524,253).
As a result of the difference in valuation between Digital Assets and Digital Securities there is a mis-match
between the values recognised (through the application of the Quoted Price against the Digital Assets held to
support the Digital Securities) and the market price of Digital Securities.
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Review of Operations (continued)
Digital Assets were revalued as at 31 December 2023 and Digital Securities are at fair valued amounts as at 29
December 2023, being the last trading day of the year. Furthermore, due to a difference in accounting
requirements applied to the gains or losses on the Digital Assets and Digital Securities the results and
comprehensive income of the Company will reflect a difference. This is presented in more detail in note 15 to
these financial statements.
The Company is entitled to a Management Fee which is calculated by reducing the Entitlement of each class of
Digital Security on a daily basis. The Management fees charged for the financial year for WisdomTree Bitcoin,
WisdomTree Ethereum, WisdomTree Cardano, WisdomTree Polkadot, WisdomTree Solana and WisdomTree
Mega Cap was 0.95% per annum and for WisdomTree Crypto Markets and WisdomTree Crypto Altcoins was
1.45% per annum.
During the current and prior period, the Company did not charge any order fees and generated income from
Management Fees and Staking Income from Solana and Ethereum as follows:
Non-GAAP Performance Measures
Under the terms of the service agreement with ManJer, the Company accrued expenses equal to the
Management Fee, order fees and staking income which, after taking into account other investment income and
expenses, resulted in a result before fair value movements for the period of USD Nil. (2022: USD Nil)
As the difference in the valuation of Digital Assets (held to support the Digital Securities) and Digital Securities
would be eliminated on a subsequent redemption of the Digital Securities and transfer of the corresponding
Digital Asset (as described further in note 8), the Company presents an adjusted Statement of Profit or Loss
and Total Comprehensive Income and an adjusted Statement of Changes in Equity for the period in note 15 of
the financial statements.
Geopolitical conflicts
The Board continues to monitor and assess the impact of ongoing geopolitical conflicts on the Company’s
portfolio operations and valuation and will take any further actions needed or as required under the terms of the
Prospectus, as facts and circumstances are subject to change and may be specific to investment strategies
and jurisdictions. Whilst it is not currently possible to predict future market conditions and therefore determine if
any further action may be required on any other classes of Digital Securities, the action that may be required
includes, but is not limited to, temporarily not accepting applications for Digital Securities, temporarily
suspending Digital Securities from trading on Stock Exchanges or a compulsory redemption of Digital
Securities. The Company has not initiated any of these further actions to date. Any such action will be
undertaken in accordance with the constitutive documents of the Digital Securities.
Going Concern
The nature of the Company’s business dictates that the outstanding Digital Securities may be redeemed at any
time by the holder through an Authorised Participant and in certain circumstances may be compulsorily
redeemed by the Company or in the event where there is no Authorised Participant in the market, directly by the
holder of the Digital Security. As the redemption of Digital Securities will coincide with the transfer of an equal
amount of Digital Assets, and furthermore, the Company will hold the Digital Assets received to support the
Digital Securities issued and will only transfer out Digital Assets to facilitate the payment of Management Fees,
rebalancing the Baskets or the redemption of Digital Securities, this process is considered to minimise
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Review of Operations (continued)
Going Concern (continued)
exposure to liquidity risk. Staking Expenses are met by the Company, out of the staking income. All other
expenses are met by Manjer. The directors are closely monitoring the financial position and performance of
ManJer, its assets under management, and therefore its related revenue streams, in respect of fulfilling the
obligations under the services agreement. The directors consider the operations of the Company to be
ongoing, with a reasonable expectation that the Company has adequate resources to continue in operation
existence until at least 30 April 2025 (being the period of assessment), and accordingly these financial
statements have been prepared on the going concern basis.
Future Developments
The Digital Securities are admitted for listing on the SIX Swiss Exchange, Euronext Paris and Amsterdam
Exchange and Xetra Exchange (refer to page 3) and the directors are actively seeking to list the Digital
Securities on other exchanges in the European Union.
The Board are not aware of any other developments that might have a significant effect on the operations of the
Company in subsequent financial periods not already disclosed in this report or the attached financial
statements. Refer to Note 14 for changes in Management fee rates in subsequent periods.
Dividends
Due to the design of the Digital securities, the Company will never have sufficient distributable reserves to
enable any declaration or payment of a dividend.
Employees
The Company does not have any employees. It is the Company’s policy to use the services of specialist
subcontractors or consultants as far as possible.
Directors’ Remuneration
No director has a service contract with the Company. The directors of the Company who are employees within
the WisdomTree, Inc group, the ultimate parent to ManJer, do not receive separate remuneration in their
capacity as directors of the Company. JTC Fund Solutions (Jersey) Limited (“JTC”) received a fee in respect of
the directors of the Company who are employees of JTC.
The following director’s fees have been paid by ManJer on behalf of the Company for the year:
*Directors fees paid to JTC Fund Solutions (Jersey) Limited for the provision of directors to the Company from
the date of their appointment. Patrick Nyahwo resigned during the 2022 financial period and was replaced on
the Board by Alan Baird. Stuart Bell resigned and was replaced on the Board by Bryan Governey on the 24 May
2023.
There were no amounts of loans, advanced payments and guarantees granted to or on behalf of any Director of
the Company.
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Review of Operations (continued)
Auditor
The Independent Auditor is Ernst & Young LLP. A resolution to re-appoint Ernst & Young LLP will be proposed
at the next Board meeting of the directors.
The statutory audit fees for the year ended 31 December 2023 was GBP 107,067 (31 December 2022: GBP
85,000) and is borne by ManJer.
Principal risks and uncertainties
There is an inherent risk from the point of view of investors as the values of Digital Assets, and thus the value of
the Digital Securities, may vary widely due to, amongst other things, changing supply and demand for Digital
Assets, government and monetary policy or intervention, interest rate levels and global or regional political,
economic or financial events. The market price of Digital Securities is (and will remain) a function of supply and
demand amongst investors wishing to buy and sell Digital Securities and the bid or offer spread that the market
makers are willing to quote.
Each Digital Security is a debt instrument whose redemption price is linked to the value of the relevant
underlying digital asset or as in the Baskets, a combination of digital assets. Each Digital Security is issued
under limited recourse arrangements whereby the holders have recourse only to the relevant Digital Assets
(Held to support the Digital Securities) and not to the Digital Assets of any other class of Digital Security or to
the Company. The Company holds Digital Assets to support the Digital Securities. As a result, gains or losses
on the liability represented by the Digital Securities are offset by corresponding losses or gains attributable to
the Digital Assets (see detail on page 3 regarding the accounting mis-match). However, the difference in
valuation between Digital Assets (held to support the Digital Securities) and Digital Securities creates a mis-
match between the values reported within these financial statements. The Company’s exposure to risks,
including further details surrounding the value of Digital Securities and the Digital Assets (held to support the
Digital Securities), are disclosed in note 12 and note 15 to the financial statements.
Movements in the value of the Digital Assets (held to support the Digital Securities), and thus the value of the
Digital Securities, may vary widely which could have an impact on the demand for the Digital Securities issued
by the Company. These movements are shown in notes 7 and 8.
Furthermore, the Company has an obligation to remunerate ManJer with an amount equal to the management
fee, the creation and redemption fees earned (the “ManJer Fee”) and 25% of staking income earned, which
results in the Company recognising a result before fair value movements of nil for each period. As a result, the
principal risks and uncertainties to which the Company is exposed has not materially changed during 2023.
Additional information on other financial and operational risks and uncertainties faced by the Company are
disclosed in note 12 of these financial statements.
The fair value of Digital Securities as at 31 December amounted to:
Further information on the contractual value of the Digital Securities on a daily basis can be found on the
WisdomTree website (https://www.wisdomtree.eu/en-gb/products).
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Review of Operations (continued)
Principal risks and uncertainties (continued)
Movements in the value of the underlying Digital Assets (held to support the Digital Security), and thus the
value of the Digital Securities, may vary widely which could have an impact on the demand for the Digital
Securities issued by the company. These movements are shown in note 7 and 8.
The movement in the prices of the Digital Assets, as at 31 December are:
Corporate Governance
There is no standard code of corporate governance in Jersey. The operations, as previously described in the
directors’ report, are such that the directors have determined that the Company is not required to apply, and has
elected not to voluntarily apply, the Dutch Corporate Governance Code.
As the Board is small, there is no nomination committee and appointments of new directors are considered by
the Board as a whole. The Board does not consider it appropriate that directors should be appointed for a
specific term. Furthermore, the structure of the Board is such that it is considered unnecessary to identify a
senior non-executive director.
The constitution of the Board is disclosed on page 2. The Board meets regularly as required by the operations
of the Company, but at least quarterly to review the overall business of the Company and to consider matters
specifically reserved for its review.
Internal Control
During the period the Company did not have any employees or subsidiaries, and there is no intention that this
will change. The Company, being a special purpose company established for the purpose of issuing Digital
Securities, has not undertaken any business, save for issuing and redeeming Digital Securities, entering into
the required agreements and performing the obligations and exercising its rights in relation thereto, since its
incorporation. The Company does not intend to undertake any business other than issuing and redeeming
Digital Securities and performing the obligations and exercising its rights in relation thereto.
The Company is dependent upon ManJer to provide management and administration services to it. ManJer is
licensed under the Financial Services (Jersey) Law 1998 to conduct classes U and Z of Fund Services
Business. ManJer outsources the administration services in respect of the Company to JTC Fund Solutions
(Jersey) Limited. Documented contractual arrangements are in place with the Administrator that defines the
areas where the authority is delegated to them. The performance of the Manager and Administrator are
reviewed on an ongoing basis by the Board through their review of periodic reports.
ManJer provides management and other services to both the Company and other companies issuing
commodity and index tracking securities.
The Board having reviewed the effectiveness of the internal control systems of the Manager and Administrator
does not consider that there is a need for the Company to establish its own internal audit function.
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Review of Operations (continued)
Audit Committee
The Board has not established a separate audit committee; instead the Board meets to consider the financial
reporting by the Company, the internal controls, and relations with the external auditors. In addition, the Board
reviews the independence and objectivity of the auditor.
Corporate Social Responsibility
Sustainability and corporate responsibility are embedded throughout the business of the WisdomTree group,
as we believe this benefits shareholders and employees of the WisdomTree group, investors in WisdomTree’s
products as well as wider society.
Environmental, Social and Governance (“ESG”) investing is guided at the WisdomTree group level by an ESG
Steering Committee, which includes senior leaders from across the WisdomTree group business, and which
included several sub-committees focused on particular ESG considerations, such as improving data and
transparency into the ESG attributes of WisdomTree’s products. Particular ESG considerations relevant to the
Company’s products are overseen by the directors, leveraging the work undertaken by the ESG Steering
Committee. More information on WisdomTree’s corporate social responsibility strategy can be found on the
WisdomTree group website (https://www.wisdomtree.eu/en-gb/wisdomtree-corporate-responsibility).
The Board acknowledges that climate change and its impact on the global economy is of increasing interest
and focus for stakeholders and that, where relevant, stakeholders will seek information from companies
regarding how climate change is expected to impact the operations of the business and how climate change
risk has been considered in the context of reported results.
In acknowledging the above, the Board has considered the Company’s exposure to climate change and
determined that due to the nature of the Company and its operations there are no directly observed impacts of
climate change on the business. As a result, the Board concluded that there is no basis on which to provide
extended information of analysis relating to climate change, including as part of the basis of accounting or
individual accounting policies adopted by the Company.
In the above determination, the Board has concluded specifically that climate change, including physical and
transition risks, does not have a material impact on the recognition and separate measurement considerations
of the assets and liabilities in these financial statements as at 31 December 2023.
This conclusion is based on the fact that assets are reported at fair value under IFRS, and as set out in note 12
are categorised as level 1 due to the use of observable, verifiable inputs which is based on market transactions
of identical assets through third party pricing sources. The liabilities are valued utilising listed market prices at
the period end. These observable inputs and market prices will reflect wider market sentiment, which
inherently includes market perspectives relating to the impact of climate change.
The Board recognises that government and societal responses to climate change risks are still developing, and
the future impact cannot be predicted. Future valuations of assets and liabilities may therefore differ as the
market responds to these changing impacts or assesses the impact of current requirements differently.
The Board has concluded specifically that climate change, including physical and transition risks, does not
have a material impact on the recognition and separate measurement considerations of the assets and
liabilities in these financial statements as at 31 December 2023.
Alan Baird
Director
Jersey
19 April 2024
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The directors are responsible for preparing the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial statements for each financial period. Under that law
they have elected to prepare the financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and applicable law.
Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern; and
use the going concern basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law
1991. They are responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website. Legislation in Jersey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Under the Directive 2004/109/EC, amended by Directive 2013/50/EU (collectively the Transparency Directive),
and having regard to the Dutch Financial Supervision Act and Book 2 of the Dutch Civil Code, the directors
confirm that to the best of their knowledge that:
the financial statements for the year ended 31 December 2023 give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company as required by law and in
accordance with IFRS as issued by the IASB; and
the Directors’ Report gives a fair view of the development and performance of the Company’s
business, including financial position and the important events that have occurred during the year,
and their impact on these financial statements, together with a description of the principal risks and
uncertainties they face.
By order of the Board
Alan Baird
Director
Jersey
19 April 2024
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED
Opinion
We have audited the financial statements of WisdomTree Issuer X Limited (the “company”) for the year ended 31
December 2023 which comprise Statement of Profit or Loss and Other Comprehensive Income, the Statement of
Financial Position, the Statement of Cash Flows, the Statement of Changes in Equity, and the related notes 1 to
15, including material accounting policy information. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”).
In our opinion, the financial statements:
give a true and fair view of the state of the company’s affairs as at 31 December 2023 and of its loss for the
period then ended;
have been properly prepared in accordance with IFRS;
have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the financial statements section of our report. We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial statements, including the UK FRC’s Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’
assessment of the company’s ability to continue to adopt the going concern basis of accounting included:
►
We obtained an understanding of management’s rationale for using the going concern basis of
accounting and confirmed our understanding of management’s Going Concern assessment process
including the process they adopted to capture all key factors in their assessment;
►
We obtained management’s board approved going concern assessment covering the period of
assessment from the date of signing to 30 April 2025. Management’s assessment has focused on
a combination of;
Assessing the ongoing viability of the company through continued involvement of its Custodians
and Authorised Participants;
Assessing the ongoing ability of WisdomTree Management Jersey Limited (“ManJer”) to
continue to meet its obligations as manager and pay all expenses of the Company. This
includes consideration of the assets under management of all managed issuer entities (“Issuer
Platform”) which includes this, Company. In assessing this ability, we considered the fixed and
variable operating costs that could be supported under varying levels of total assets under
management for the Issuer Platform.
►
Using our understanding of the business, we evaluated whether the considerations and method adopted
by management in assessing going concern was appropriate.
►
We performed reverse stress testing on the forecasts to understand how severe the downside scenarios
would have to be, and in particular the reduction in platform assets under management, to result in the
platform generating insufficient management fees to cover operating costs. We observed significant
headroom in management fee income, at current Assets Under Management (“AUM”) levels, in excess
of fixed and AUM based costs which supports management’s assumption that the Issuer Platform is able
to absorb heightened levels of volatility in AUM.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
►
We considered whether management’s disclosures, in the Annual Report and financial statements,
sufficiently and appropriately discloses information required in respect of the going concern assumption
applied through consideration of relevant disclosure standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a
going concern for a period to 30 April 2025.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the
relevant sections of this report. However, because not all future events or conditions can be predicted, this
statement is not a guarantee as to the company’s ability to continue as a going concern.
Overview of our audit approach
►
Valuation of Digital Assets
►
►
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine
our audit scope for the company. This enables us to form an opinion on the financial statements. We take into
account size, risk profile, the organisation of the company and effectiveness of controls, changes in the business
environment and the potential impact of climate change when assessing the level of work to be performed. All
audit work was performed directly by the audit engagement team.
Changes from the prior year
This is the first year staked assets are material. The accounting policy developed to account for this matter is
therefore be of particular relevance in the current audit period.
Climate change
There has been increasing interest from stakeholders as to how climate change will impact companies. The
Company has determined that there are no directly observed impacts of climate on the business due to the nature
of the company and its operations. This is explained on page 9 in the corporate social responsibility section, which
forms part of the “Other information,” rather than the audited financial statements. Our procedures on these
disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated.
Our audit effort in considering the impact of climate change was focused on evaluating management’s assessment
of the impact of climate risk, physical and transition, the adequacy of the company’s disclosures in the financial
statements as set out in note 2 and conclusion that there was no further impact of climate change to be taken into
account as the material assets and liabilities are valued based on market pricing as required by IFRS.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest
effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a
whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
-13-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
-14-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
-15-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the company to be US$4.10 million (2022: US$1.34 million), which is 1% of total
assets. We believe that Total Assets provides us with an appropriate basis for audit materiality as Total Asset
value reflects the relevant exposure of holders of issued securities to the underlying Digital Asset base.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment of the company’s overall control environment,
our judgement was that performance materiality was 50% (2022: 75%) of our planning materiality, namely
US$2.05m (2022: US$1.01m). We have set performance materiality at this percentage in response to the value of
errors identified and corrected in the prior year financial statement close process. We had set performance
materiality at 75% of our planning materiality in the prior year based on our prior experience of not identifying
errors or significant audit differences.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Board that we would report to them all uncorrected audit differences in excess of US$0.21m
(2022: US$0.07m), which is set at 5% of planning materiality, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed
above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 10, other than
the financial statements and our auditor’s report thereon. The directors are responsible for the other information
contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Jersey) Law
1991 requires us to report to you if, in our opinion:
proper accounting records have not been kept by the company, or proper returns adequate for our audit have
not been received from branches not visited by us; or
the financial statements are not in agreement with the company’s accounting records and returns; or
we have not received all the information and explanations we require for our audit.
European Single Electronic Format (ESEF)
The Company has prepared its annual report and financial statements in ESEF. The requirements for this are set
out in the Delegated Regulation (EU) 2019/815 with regard to regulatory technical standards on the specification of
a single electronic reporting format (hereinafter: the RTS on ESEF).
In our opinion the annual report and financial statements prepared in XHTML format complies in all material
respects with the RTS on ESEF.
Management is responsible for preparing the annual report and financial statements in accordance with the RTS
on ESEF.
Our responsibility is to obtain reasonable assurance for our opinion whether the annual report and financial
statements complies with the RTS on ESEF.
We performed our procedures having regard for Dutch Standard 3950N ‘Assurance engagements relating to
criteria for digital reporting’. Our procedures included amongst others:
►
obtaining an understanding of the entity's financial reporting process, including the preparation of the
annual report and financial statements in XHTML-format;
►
Identifying and assessing the risks that the annual report and financial statements does not comply in all
material respects with the RTS on ESEF and designing and performing further assurance procedures
responsive to those risks to provide a basis for our opinion, including obtaining the annual report and
financial statements in XHTML format and performing validations to determine whether the annual report
and financial statements complies with the RTS on ESEF.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities set out on pages 10, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
-17-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in
line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with
governance of the company and management.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and
determined that the most significant are those that relate to the reporting framework, comprising IFRS, the
Companies (Jersey) Law 1991 and the listing rules of Euronext Amsterdam;
We understood how WidsomTree Issuer X Limited is complying with those frameworks by making enquiries of
the directors and key management of the administrative service provider. We corroborated our enquiries
through our review of minutes of Board meetings, papers provided to the board and correspondence received
from regulatory bodies. We considered assessments made by management in relation to compliance with the
rules of Euronext Amsterdam;
We assessed the susceptibility of the company’s financial statements to material misstatement, including how
fraud might occur by understanding the investment objectives of the Company and discussing with
management to understand where reporting was considered susceptible to fraud. Where this risk was
considered to be higher, we performed audit procedures in response to the identified fraud risk. These
procedures included testing of transactions to supporting documentation, testing of specific accounting journal
entries and focussed testing, including that referred to in the key audit matters section above. These
procedures were designed to provide reasonable assurance that the financial statements were free from fraud
or error;
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and
regulations. Our procedures involved a review of board minutes to identify any non-compliance with laws and
regulations, a review of any associated reporting submitted to the board on compliance with laws and
regulations and enquiries of members of management of the appointed administrative service provider;
As the Company operates in the asset management industry the Audit Partner reviewed the experience of the
engagement team and concluded that the team had the appropriate competence and capabilities.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Other matters we are required to address
Following the recommendation from the audit committee, we were appointed by the company on 26 November
2019 to audit the financial statements. The first statutory period was for the period ending 31 December 2020. The
period of total uninterrupted engagement including previous renewals and reappointments is 4 years, covering the
statutory period and years ending 31 December 2020 to 31 December 2023 respectively.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company and
we remain independent of the company in conducting the audit.
The audit opinion is consistent with the additional report to those charged with governance.
-18-
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF WISDOMTREE ISSUER X LIMITED (continued)
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A of the
Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and
the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Andrew Jonathan Dann, FCA
for and on behalf of Ernst & Young LLP
Jersey, Channel Islands
Date: 19 April 2024
-19-
The directors consider the Company’s activities as continuing.
The notes on pages 24 to 49 form part of these annual financial statements
1 A non-statutory and non-GAAP Statement of Profit or Loss and Total Comprehensive Loss reflecting adjustments
representing the movement in the difference between the value of Digital Assets (held to support the Digital Securities) and
the price of Digital Securities is set out in note 15.
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The assets and liabilities in the above Statement of Financial Position are presented in order of liquidity from
most to least liquid.
The financial statements on pages 20 to 49 were approved and authorised for issue by the board of directors
and signed on its behalf on 19 April 2024.
Alan Baird
Director
The notes on pages 24 to 49 form part of these annual financial statements
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Digital Securities are issued through a direct transfer of Digital Assets from the Authorised Participants to the
Custodian or redeemed by the direct transfer of Digital Assets by the Custodian to the Authorised Participants.
As such the Company is not a party to any cash transactions with the Authorised Participants. The creations
and redemptions of Digital Securities and additions and disposals of Digital Assets (other than the rebalancing
transactions included in investing activities), which are non-cash transactions for the Company, are disclosed in
notes 7 and 8 respectively in the reconciliation of opening to closing Digital Securities and Digital Assets. The
Company does hold a cash account with the Custodian to enable rebalancing of the Baskets where direct pairs
of Digital Assets cannot be traded. In such circumstances the Custodian will convert the Digital Asset to USD in
order to purchase the corresponding Digital Asset required for the rebalancing and no cash will remain in the
account.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company, (including marketing) as well as the payment of costs relating
to the listing and issue of Digital Securities. In return for these services, the Company has an obligation to
remunerate ManJer with an amount equal to the aggregate of the Management Fee, the order fees and 25% of
the staking income (the “ManJer Fee”). The Digital Assets in respect of the Management Fee are transferred
from the Company’s Custodian accounts to ManJer’s Custodian accounts in Digital Assets as disclosed in note
7. In addition, the order fees are transferred directly from the Authorised Participants to ManJer and there are
no cash flows through the Company.
The notes on pages 24 to 49 form part of these annual financial statements
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The notes on pages 24 to 49 form part of these annual financial statements
2 A non-statutory and non-GAAP Statement of Changes in Equity reflecting adjustments representing the difference between the value of Digital Assets (held to support the Digital
Securities) and the price of Digital Securities is set out in note 15.
23www.wisdomtree.eu
1.
General Information
WisdomTree Issuer X Limited (the “Company”) is a company incorporated and domiciled in Jersey. The
address of the registered office is 28 Esplanade, St. Helier, Jersey, JE4 2QP.
The purpose of the Company is to provide a vehicle that facilitates the issuance and subsequent listing and
trading of securities that track the performance of digital currencies (“Digital Securities”). The most recent
Prospectus was issued on 10 July 2023. Details regarding the listing of each class of Digital Security can be
found on page 3 of the Directors’ Report.
Each Digital Security is issued under limited recourse arrangements whereby the holders have recourse only to
the relevant digital currencies (held to support the Digital Securities) and not to the digital currencies of any
other Digital Security or to the Company. The Digital Securities are secured on an amount of digital currencies
equivalent to the entitlement to that digital asset (the “Digital Asset”) in respect of each Digital Security (referred
to as the “Entitlement”), which is calculated in accordance with an agreed formula published in the Prospectus.
The Company holds Digital Assets to support the Digital Securities as determined by the Entitlement. The
Company does not make gains from trading in the Digital Assets (held to support the Digital Securities).
However, the difference in valuation between Digital Assets (held to support the Digital Securities) and Digital
Securities creates a mis-match between the values reported within these financial statements (refer to note 2).
This difference in valuation would be eliminated on a subsequent redemption of the Digital Securities and
transfer of the corresponding Digital Asset. Further details are disclosed within the Accounting Policies and in
note 15, with additional information regarding the risks of the Company disclosed in note 12. Furthermore, the
Company presents an adjusted Statement of Profit or Loss and Total Comprehensive Income and an adjusted
Statement of Changes in Equity for the period in note 15 of the financial statements.
Exchange traded products are not typically actively managed, are significantly lower in cost when compared to
actively managed mutual funds and are easily accessible to investors. Other than in the case of rebalancing the
Baskets, no active trading or management of Digital Assets is required of the Company because the Company
only receives or delivers Digital Assets on the issue and redemption of Digital Securities, and only holds Digital
Assets as determined by the Entitlement of each class to support the Digital Securities.
The Company is entitled to:
(1)
a management fee which is calculated by reducing the Entitlement of each class of Digital Security on a
daily basis by an agreed amount (the “Management Fee”);
(2)
Staking income earned on staked Digital Assets, and
(3)
order fees on the issue and redemption of the Digital Securities.
No order fees are payable to the Company when investors trade in the Digital Securities on a listed market such
as the SIX Swiss Exchange. Order fees may also be waived with certain approved persons where applicable.
The Company has entered into a service agreement with WisdomTree Management Jersey Limited (“ManJer”
or the “Manager”), whereby ManJer is responsible for supplying or procuring the supply of all management and
administration services required by the Company, (including marketing) as well as the payment of costs relating
to the listing and issuance of Digital Securities. In return for these services, the Company pays ManJer an
amount equal to the Management Fee, 25% of staking income and the order fees earned (the “ManJer Fee”).
As a result, there is no result before fair value movements recognised through the Company.
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2.
Accounting Policies
The main accounting policies of the Company are described below.
Basis of Preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as issued by the International Accounting Standards Board (“IASB”), and interpretations issued by
the International Financial Reporting Interpretations Committee of the IASB. The financial statements have
been prepared under the historical cost convention, except for:
financial liabilities held at fair value through profit or loss;
revaluation of Digital Assets at fair value; and
revaluation of Digital Assets Held in Respect of Management Fees.
Corporate Social Responsibility
The Board has considered the Company’s exposure to climate change and determined that due to the nature of
the Company and its operations there are no directly observed impacts of climate change on the business. As
a result, the Board concluded that there is no basis on which to provide extended information of analysis
relating to climate change, including as part of the basis of accounting or individual accounting policies adopted
by the Company.
In the above determination, the Board has concluded specifically that climate change, including physical and
transition risks, does not have a material impact on the recognition and separate measurement considerations
of the assets and liabilities in these financial statements as at 31 December 2023.
This conclusion is based on the fact that assets are reported at fair value under IFRS, and as set out in note 12
are categorised as level 1 due to the use of observable, verifiable inputs from an exchange. The liabilities are
valued utilising listed market prices at the period end. These observable inputs and market prices will reflect
wider market sentiment, which includes market perspectives relating to the impact of climate change.
Critical Accounting Estimates and Judgements
The presentation of financial statements in conformity with IFRSs requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s
accounting policies.
The Company can make estimates and judgements that affect the reported amounts of assets and liability.
Where estimates and judgements are made, they are continually evaluated and based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances. The Company did not make any estimates during the year and the key accounting judgements
required to prepare these financial statements are:
1.
The determination of the functional currency.
The principal activity of the Company is to hold Digital Assets to support the Digital Securities issued, and
the Company has entered into contractual obligations to issue Digital Securities through a direct transfer of
Digital Assets from the Authorised Participant to the Custodian or redeemed by the direct transfer of Digital
Assets by the Custodian to the Authorised Participant. Furthermore, the majority of the Company’s
income and expenses are transacted through the transfer of Digital Assets.
Given that the activities described above the Company also considered other factors in determining the
functional currency, specifically:
the base currency denomination of the Digital Securities issued;
the denomination of the order fees; and
the level of trading of Digital Assets on a variety of exchanges, against fiat currencies.
As a result of the assessment, the Company concluded that United States Dollars is the functional
currency of the Company.
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2.
Accounting Policies (continued)
Critical Accounting Estimates and Judgements (continued)
2.
The determination of the valuation methodology applied to Digital Assets.
The Prospectus includes a description of a methodology for investors to calculate an indicative net asset
value (“NAV”) of the WisdomTree Bitcoin and WisdomTree Ethereum securities using the relevant
Reference Rate published by the Chicago Mercantile Exchange Group (“CME”), being either the CME CF
Bitcoin Reference Rate or the CME CF Ethereum Reference Rate (collectively the “CME Price”).
The application of the IAS 38 revaluation model requires an active market for the transfer and sale of the
Digital Assets that the Company holds, and that the fair value shall be calculated by reference to the
market price. The CME Price is designed to represent the daily price by applying transparent indicators
with independent governance and oversight. It is calculated based on the transactions of all constituent
exchanges (i.e. being observed on-market prices) included in the index (the “CME Relevant
Transactions”).
As a result, the CME Price is not considered to meet the definition of a level 1 fair value price under IFRS
13 (as required by the application of revaluation model under IAS 38), which requires the Company to
identify the principal market and to utilise the available prices within that principal market, and is therefore
not suitable to be applied for use in measurement of fair value of assets within these financial statements.
Consequently, a difference arises between the indicative NAV of the Digital Securities applying the CME
Price (as set out in the Prospectus) and the value of the Digital Assets are presented in these financial
statements.
There are various exchanges that each have their own independent digital currency prices each day, and
the Company could access any one of these exchanges to be able to transact. As a result there is
judgement required in determining the principal market and therefore the appropriate market price to be
applied, in accordance with the provisions of IFRS 13.
The directors shall select the principal market based on the following criteria:
The Company is not restricted from establishing a trading relationship with the exchange;
The exchange publishes independent prices; and
The exchange meets a number of the Company’s pre-set eligibility criteria (including reliability of
published data, and greatest trading volumes particularly in exchanging the underlying Digital
Assets for US Dollars being the functional currency for financial reporting purposes).
In terms of IFRS 13, paragraph 17, the market in which the entity would normally enter into a transaction
to sell the asset or to transfer the liability is presumed to be the principal market which is Coinbase. During
the period the company concluded all trades in relation to portfolio rebalancing through Coinbase and it is
therefore regarded as its principal market.
The Digital Assets are revalued using the exchange price for that digital asset, published by an exchange
meeting those requirements (the “Quoted Price”). In addition, the directors shall re-assess the principal
market at the start of each financial, or interim financial period, as well as at any time it is determined the
current principal market is no longer meets the determined criteria as set out above. During the period
(and subsequently to the date of this report) the exchange considered by the directors to meet these
requirements is Coinbase.
Furthermore, digital currency trading exchanges are generally open to trade 24 hours a day and the
directors have been required to apply further judgment in selecting the time at which the Quoted Price is
taken as the markets do not have a ‘close’. The directors have determined that the Quoted Price of the
Digital Assets shall be taken at 4:30pm (GMT) as this mirrors the time that the markets of the Digital
Securities close for trading, and it is considered that this would minimise the potential mismatch between
the assets and liabilities.
Digital Assets were revalued as at 31 December 2023 and Digital Securities are at fair valued amounts as
at 29 December 2023, being the last trading day of the year. The directors do not consider that any
significant estimates have been applied in the preparation of these financial statements.
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2.Accounting Policies (continued)
Critical Accounting Estimates and Judgements (continued)
3.
The determination of recognition of the staked digital assets.
The Company has enabled staking of Digital Assets, staking a target of 80% of the amount of assets of
WisdomTree Solana and a target of 20% of the amount of assets of WisdomTree Ethereum through
Coinbase Validators and its Service Providers via Coinbase Custody. The average staking period for
assets relating to WisdomTree Physical Solana and WisdomTree Physical Ethereum are 2.5 days and 10
days, respectively.
The characteristics of the staked assets is as follows:
The staked assets are unregulated and not controlled by a central authority
The staked assets are digital coins or tokens recorded using a distributed ledger infrastructure
The coins are intangible in nature and non-monetary
The coins are staked using private validators
The coins are held in cold storage wallets for the duration of the staking period
Having considered the above characteristics and the fact that the Company still has the rights to control the
assets as they remain in cold storage and can unstake the digital assets in under 30 days and trade them,
Management has analysed and concluded not to derecognise the original unstaked assets and continue to
measure the staked Digital Assets using the revaluation model under IAS 38.
Significant Judgements
The key accounting judgement required to prepare these financial statements is in respect of the presentation
of non-statutory and non-Gaap adjustments to the Statement of Profit or Loss and Other comprehensive
Income and the Statement of Changes in Equity, as disclosed in note 15.
Going Concern
The nature of the Company’s business dictates that the outstanding Digital Securities may be redeemed at any
time by the holder through an Authorised Participant and in certain circumstances may be compulsorily
redeemed by the Company or in the event where there is no Authorised Participant in the market, directly by the
holder of the Digital Security. As the redemption of Digital Securities will coincide with the transfer of an equal
amount of Digital Assets, and furthermore, the Company will hold the Digital Assets received to support the
Digital Securities issued and will only transfer out Digital Assets to facilitate the payment of Management Fees,
rebalancing the Baskets or the redemption of Digital Securities, no net liquidity risk is considered to arise.
Staking Expenses are met by the Company, out of the staking income. All other expenses are met by Manjer.
The directors are closely monitoring the financial position and performance of ManJer, its assets under
management, and therefore its related revenue streams, in respect of fulfilling the obligations under the
services agreement. The directors consider the operations of the Company to be ongoing, with a reasonable
expectation that the Company has adequate resources to continue in operation existence until at least 30 April
2025 (being the period of assessment), and accordingly these financial statements have been prepared on the
going concern basis.
Accounting Standards
(a)
Standards, amendments and interpretations not applicable to the Company:
There are no new or existing standards that have been issued or revised and became effective which are
applicable to the Company:
(b)
New and revised IFRSs in issue:
The Company has not applied the following new and revised IFRSs that have been issued:
IFRS 17 Insurance Contracts, as amended in December 2021 (effective for annual periods beginning
on or after 1 January 2023)
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective
for annual periods beginning on or after 1 January 2023)
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2.Accounting Policies (continued)
Accounting Standards (continued)
(b)
New and revised IFRSs in issue (continued)
Amendments to IAS 12 Deferred Tax (effective for annual periods beginning on or after 1 January
2023)
(c)
New and revised IFRSs in issue but not yet effective:
The Company has not applied the following new and revised IFRSs that have been issued but are not yet
effective:
Amendments to IAS 1 Non-current liabilities with covenants (effective for annual periods beginning
on or after 1 January 2024.)
Amendments to IAS 1 Preparation of Financial Statements (effective for annual periods beginning on
or after 1 January 2024)
Amendments to IAS 21 Lack of Exchangeability (effective for annual periods beginning on or after 1
January 2025)
Amendments to IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2024)
The directors do not expect the adoption of the above standards, amendments and interpretations that are in
issue but not yet effective will have a material impact on the financial statements of the Company in future
periods.
Digital Assets
The Company holds Digital Assets equal to the amount due to holders of Digital Securities solely for the
purposes of meeting its obligations under the terms of the Digital Securities.
Whilst the IFRS Interpretation Committee issued an agenda decision on the accounting for digital currencies in
June 2019, there is not one standard under IFRS which details how digital currencies are to be accounted for.
Following a review of the facts and circumstances, the directors have determined that the Digital Assets fall
within the scope of IAS 38 Intangible Assets. Furthermore, the directors have determined to account for Digital
Assets under the IAS 38 revaluation model being its fair value on the basis there is an active market for the
transfer and sale of the Digital Assets that the Company holds. The Digital Assets are held to provide the
security holders with the exposure to changes in the fair value of Digital Assets and therefore the directors
consider that carrying the Digital Assets at fair value reflects the objectives and the purpose of holding the
asset.
Digital Assets are priced on a daily basis based on the amount of the Digital Assets held using the relevant
Quoted Price and is considered to be the fair value of the Digital Assets. Also, on a daily basis an amount is
reclassified to Digital Assets held in respect of the Management Fee which is converted to USD on a monthly
basis using month end price.
i)
Issue and Redemption
Upon initial recognition and the receipt of Digital Assets, they are recorded at cost which is determined to
be the fair value using the Quoted Price.
Upon redemption of Digital Securities and the transfer out of Digital Assets, the attributable cost shall be
calculated in accordance with the average cost methodology, and the overall cost reduced accordingly to
represent the de-recognition of the Digital Assets. Any previously recognised gains on the Digital Assets
de-recognised as a result of the transfer are reclassified to retained earnings.
ii)
Subsequent Measurement
An increase in fair value is recorded first through Profit or Loss in respect of any previous losses below the
original cost recognised being reversed, with any further gains being recognised through Other
Comprehensive Income. A decrease in fair value is recorded first through Other Comprehensive Income in
respect of any previous gains recognised being reversed, with any further loss being recognised through
Profit or Loss.
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2.Accounting Policies (continued)
Digital Securities
i)
Issue and Redemption
Each time a Digital Security is issued or redeemed by the Company a corresponding amount of the
corresponding Digital Asset is transferred into or from the relevant secured account held by the Custodian.
Upon initial recognition, the fair value is recorded using the Quoted Price applied to the Digital Asset
transferred.
Financial liabilities are recognised and de-recognised on the transaction (trade) date.
ii)
Pricing
IFRS 13 requires the Company to identify the principal market and to utilise the available price within that
principal market. The directors consider that the stock exchanges where the Digital Securities are listed to
be the principal market and as a result the fair value of the Digital Securities is the on-exchange price as
quoted on those stock exchanges demonstrating active trading. The Digital Securities are priced using the
closing mid-market price on the Statement of Financial Position date.
Consequently, a difference arises between the value of Digital Assets (held to support the Digital
Securities) and Digital Securities (at fair value) presented in the Statement of Financial Position. This
difference is reversed on a subsequent redemption of the Digital Securities and transfer of the
corresponding Digital Asset.
iii)
Classification at fair value through Profit or Loss
Digital Securities comprise a financial instrument whose redemption price is linked to the value of the
underlying Digital Asset. Digital Securities are classified as liabilities at fair value through profit or loss
under IFRS 9 due to an embedded derivative. In accordance with IFRS 9, embedded derivatives are not
separated for accounting purposes if the non-derivative host is a financial instrument and the classification
criteria of IFRS 9 is applied to the instrument as a whole.
Digital Assets and Digital Securities Awaiting Settlement
The issue and redemption of Digital Securities, and the transfer in and out of Digital Assets, is accounted for on
the transaction date. The transaction will not settle until two days after the transaction date. Where transactions
are awaiting settlement at the period end, the value of the Digital Asset and the Digital Securities due to be
settled is separately disclosed within the relevant assets and liabilities on the Statement of Financial Position.
The digital securities awaiting settlement are classified as liabilities at fair value through profit or loss under
IFRS 9 due to an embedded derivative. The receivables and payables are carried at their fair value.
Digital Assets Held in Respect of Management Fees
As described above, Management Fees are accrued by reducing the Entitlement of each class of Digital
Security on a daily basis by an agreed amount. At the same time an equivalent amount is transferred from
Digital Assets to Digital Assets Held in respect of Management Fees.
As described above, under IFRS there is no standard treatment for the classification of digital currencies, and
therefore applying the same judgement described under the Digital Assets Policy, the Digital Assets held or
receivable in respect of Management Fees are accounted for in accordance with IAS38 revaluation model.
The fair value of the Digital Assets transferred to Digital Assets Held in Respect of Management Fees at the
Statement of Financial Position date is re-measured using the latest Quoted Price on that date. An increase in
fair value is recorded first through Profit or Loss in respect of any previous impairment recognised being
reversed, with any further gains being recognised through Other Comprehensive Income. A decrease in fair
value of Digital Assets is recorded through Other Comprehensive Income in respect of any previous gains
recognised being reversed, with any further impairment being recognised through Profit or Loss. Upon de-
recognition of the Digital Assets recognised in respect of Management Fees (as a result of the transfer to settle
the Management Fee payable), any previously recognised gains shall be transferred from the Revaluation
Reserve to retained earnings
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2.Accounting Policies (continued)
Management Fee Payable
Management Fees payable are also accrued based on the income recognised by the company, less any
expenditure, in accordance with the agreement with ManJer. These fees are paid by transfer of the relevant
Digital Assets therefore Management Fees payable are not considered to be financial liabilities, however under
IFRS 9 as the Digital Asset are readily convertible into cash, Management Fees are within the scope of IAS 32
and IFRS 9 respectively, because they exhibit similar characteristics to financial instruments. The company has
classified these liabilities at fair value through profit or loss as equivalent to a derivative.
Reserves
A revaluation reserve and a retained earnings reserve are maintained within equity. All profits or losses,
including gains and losses on the movement in the fair value of Digital Securities are taken to the retained
earnings reserve at the end of each accounting period. Gains and reversals of previously recognised gains
arising on the movement in the fair value of Digital Assets, above cost, are taken to the revaluation reserve at
the end of each accounting period. Losses and reversals of previously recognised losses on the movement in
the fair value of Digital Assets, below cost, are taken to the retained earnings reserve at the end of each
accounting period.
Other financial assets
Other financial assets include trade and other receivables with a fixed payment amount and are not quoted in
an active market. After initial measurement the other financial assets are subsequently measured at amortised
cost.
Income
The Company derives its income over time (in respect of Management Fees), and at a point in time (in respect
of order fees and Staking Income) as follows:
i)
Management Fees
Management Fees are calculated by applying a fixed percentage to reduce the Entitlement of each class
of Digital Security on a daily basis in accordance with the terms of the securities issued. The change in
Entitlement reduces the value of the Digital Security. This reduction equates to the Management Fee
amount in the relevant Digital Asset that is recognised for that day per each Digital Security in issue on that
day. The amount of the Management fees is recognised by converting the Digital Assets into the functional
currency by application of the Quoted Price on a monthly basis using the month end price.
ii)
Staking Income
The Company receives staking income as the reward received on staked Digital Assets during the staking
period, referred to as an epoch, and this income is received as additional Digital Assets deposited into the
Company’s custody wallets held at Coinbase. The income is recognised at the fair value being the Quoted
Price on the date the staking income is received in the Company’s wallets.
iii)
Staking Expense to Digital Securities
As announced on 03 January 2023 for WisdomTree Physical Solana and 04 September 2023 for
WisdomTree Physical Ethereum the Digital Security Holders gain exposure to 75% of the staking income
earned by the company during the accounting period through a capital adjustment factor in the coin
entitlement.
iv)
Order Fees
Fees for the issue and redemption of Digital Securities are recognised at the fair value of the consideration
expected to be received, on the date on which the transaction becomes legally binding. Accrued order fees
are invoiced and settled on a quarterly basis.
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2.
Accounting Policies (continued)
Foreign Currency Translation
The financial statements of the Company are presented in the currency in which the majority of the Digital
Securities issued by the Company are denominated (its functional currency). For the purpose of the financial
statements, the results and financial position of the Company are expressed in United States Dollars (refer to
note 2 Critical Accounting Estimates and Judgments), which is the functional currency of the Company and the
presentational currency of the financial statements.
Transactions in foreign currencies are initially recorded at the spot rate at the date the transaction. Monetary
assets and liabilities denominated in foreign currencies at the period end date are translated at rates ruling at
that date. The resulting differences are accounted for through profit or loss.
Segmental Reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the
Company that are regularly reviewed by the Chief Operating Decision Maker (“CODM”) in order to allocate
resources to the segments and to assess their performance. The CODM has been determined as the board of
directors. A segment is a distinguishable component of the Company that is engaged either in providing
products or services (business segment), or in providing products and services within a particular economic
environment (geographical segment), which is subject to risks and rewards that are different from those of other
segments.
The Company has not provided segmental information as the Company has only one business or product
group, Digital Assets, and one geographical segment which is Europe. In addition, the Company has no single
major customer from which greater than 10% of income is generated. All information relevant to the
understanding of the Company’s activities is included in these financial statements.
3.
Result Before Fair Value Movements
Result before fair value movements for the period comprised:
4.
Taxation
The Company is subject to Jersey Income Tax. During the period the Jersey Income Tax rate applicable to the
Company is zero percent.
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5.
Digital Assets Held in Respect of Management Fees
Digital Assets held in respect of Management Fees are recorded at fair value.
6.
Trade and Other Receivables
The fair value of trade and other receivables is equal to the carrying value. The Trade and Other Receivables
are due to be recovered within 12 months of the period end.
7.
Digital Assets
-
-
-
-
As at 31 December 2023, Digital Assets amounting to USD Nil (31 December 2022: USD Nil) were awaiting
settlement in respect of a redemption of Digital Securities with transaction dates before the year end and
settlement dates in the following year. All Digital Assets have been valued using the Quoted Price on 31
December 2023. The below table is a reconciliation of changes in Digital Assets:
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7.
Digital Assets (continued)
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7.
Digital Assets (continued)
The directors consider that the useful life of the Digital Assets are assessed as indefinite on the basis that they
can be held, exchanged and transferred as a store of value without an expiration date.
On 3 May 2022, the Company launched Staking of WisdomTree Physical Solana and as of 21 August 2023 the
Company launch staking of WisdomTree Physical Ethereum through Coinbase Custody via Coinbase
Validators and its Service Providers. The coins while staked, do not leave the Coinbase wallet and staking
income is earned on the coins if they remain staked for the duration of the epoch. Staking places a short term
restriction on the Company’s ability to sell and transfer staked assets. The Company has the option to unstake
the coins at any point in time during or after an epoch cycle at no cost. In a scenario where coins are unstaked,
the Company will receive staking income up to the point the assets were held in stake. As announced on 03
January 2023 for WisdomTree Physical Solana and 04 September 2023 for WisdomTree Physical Ethereum
the Digital Security Holders gain exposure to 75% of the staking income earned by the company during the
accounting period through a capital adjustment factor in the coin entitlement. The remaining 25% is paid to
ManJer.
The staked assets are recorded at fair value using the quoted market price as at 31 December 2023.The below
table reflects the assets that were staked per product as at 31 December 2023 and the staking income earned
per product during the year. The epoch cycle ranges from 2.5 days to 10 days. These assets are included in the
Portfolio Composition above.
8.Digital Securities
Whilst the Digital Securities are quoted on the open market, the Company’s ultimate liability relates to its
contractual obligations to issue and redeem Digital Securities in exchange for Digital Assets as determined by
the Entitlement of each class of Digital Security on each trading day. The fair value of each creation and
redemption of Digital Securities is recorded using the Quoted Price on the transaction date. The issue and
redemption of Digital Securities is recorded at a value that corresponds to the value of the Digital Assets
transferred in respect of the issue and redemption. However, the difference in valuation between the Digital
Assets (held to support the Digital Securities) and Digital Securities creates a mis-match between the values
reported within these financial statements.
The Company measures the Digital Securities at their fair value in accordance with IFRS 13 rather than at the
contractual obligation described above. The fair value is deemed to be the price quoted on exchanges where
the Digital Securities are listed or traded, and it is determined based on the highest volume of trades, concluded
on the respective exchange, where there are multiple exchanges.
The fair values and changes thereof during the period based on prices available on the open market as
recognised in the financial statements are:
-
-
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8.
Digital Securities (continued)
The contractual redemption values and changes thereof during the period based on the contractual settlement
values are:
The gain or loss on the difference between the value of the Digital Assets (held to support the Digital Securities)
and the fair value of Digital Securities would be reversed on a subsequent redemption of the Digital Securities
and transfer of the corresponding Digital Assets. Refer to note 15 for the non-statutory and non-GAAP
adjustments which reflect the results of this reversal.
As at 31 December 2023, Digital Securities amounting to USD Nil (31 December 2022: USD Nil) were awaiting
settlement in respect of a redemption with transaction date before the year end and settlement dates in the
following year.
The below reconciliation of changes in the Digital Securities, being liabilities arising from financing activities,
includes only non-cash changes.
*Baskets
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8.
Digital Securities (continued)
*Baskets
Digital Assets were revalued as at 31 December 2023 and Digital Securities are at fair valued amounts as at 29
December 2023, being the last trading day of the year.
9.Trade and Other Payables
Management Fees payable by transfer of Digital Assets are recorded at fair value. The fair value of the
remaining payables is equal to the carrying value. The ManJer Fee Payable is due to be settled within 12
months of the period end.
10.Stated Capital
The Company can issue an unlimited capital of nil par value shares in accordance with its Memorandum of
Association.
All Shares issued by the Company carry one vote per Share without restriction and carry the right to dividends.
All Shares are held by WisdomTree Holdings Jersey Limited (“HoldCo”).
The Company Issued 2 Shares at incorporation and the shares were translated on initial recognition at the
USD/GBP rate of 0.8098. The shares remain unpaid.
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11.Related Party Disclosures
Entities and individuals which have significant influence over the Company, either through ownership or by
virtue of being a director of the Company are considered to be related parties. In addition, entities with common
ownership to the Company and entities with common directors are also considered to be related parties.
Fees charged by ManJer during the period:
The following balances were due to ManJer at the period end:
At 31 December 2023, USD 2 is receivable from HoldCo (31 December 2022: USD 2).
As disclosed in the Directors’ Report, ManJer paid director’s fees in respect of the Company as per below.
*Directors fees paid to JTC Fund Solutions (Jersey) Limited for the provision of Directors to the Company from
the date of their appointment. Patrick Nyahwo resigned during the 2022 period and was replaced on the Board
by Alan Baird. Stuart Bell resigned during the 2023 period and was replaced on the Board by Bryan Governey
on the 24 May 2023.
There were no amounts of loans, advanced payments and guarantees granted to or on behalf of any Director of
the Company.
Patrick Nyahwo was a Director of JTC Fund Solutions (Jersey) Limited and resigned on the 21 October 2022.
Alan Baird is a Director and Hilary Jones is an employee of JTC Fund Solutions (Jersey) Limited. During the
year, ManJer paid administration fees of GBP 128,320 (31 December 2022: GBP 183,794) to JTC Fund
Solutions (Jersey) Limited on the Company’s behalf.
Stuart Bell was an executive officer of WisdomTree, Inc. and resigned from the Company on the 24 May 2023.
Peter Ziemba officer of WisdomTree, Inc. and Bryan Governey is an employee of WisdomTree Ireland Limited.
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12.Financial Risk Management
The Company is exposed to a number of risks arising from its activities, including credit risk, risk factors relating
to the Digital Assets, liquidity risk, settlement risk and market risk. The Board is responsible for the overall risk
management approach and for approving the risk management strategies and principles. The Board meets
frequently to consider the risk exposures of the Company and to determine appropriate management policies.
The risk management policies employed by the Company to manage these are discussed below.
The Digital Securities are subject to normal market fluctuations and other risks inherent in investing in securities
and other financial instruments. There can be no assurance that any appreciation in the value of securities will
occur, and the capital value of an investor’s original investment is not guaranteed. The value of investments
may go down as well as up, and an investor may not get back the original amount invested.
The information provided below is not intended to be a comprehensive summary of all the risks associated with
the Digital Securities and investors should refer to the most recent Prospectus for a detailed summary of the
risks inherent in investing in the Digital Securities. Any data provided should not be used or interpreted as a
basis for future forecast or investment performance.
(a)
Credit Risk
Credit risk primarily refers to the risk that Authorised Participants or the Custodian will default on its contractual
obligations resulting in financial loss. At the reporting date the Company had no Digital Securities awaiting the
transfer of Digital Assets.
Credit risk is managed by the Company by only dealing with Authorised Participants who are believed to be
creditworthy. The Company assesses the creditworthiness of the Authorised Participant by ensuring that they
deal with reputable organisations and regularly reviewing their business and its operations. In the event the
Authorised Participants fail to complete their obligation, no Digital Securities will be created therefore the
Company does not have the risk of loss of the amount expected to be received. Each class of Digital Security is
issued under limited recourse arrangements whereby the holders have recourse only to the relevant Digital
Assets (held to support the Digital Securities) and not to the Digital Assets of any other class of Digital Security,
or to the Company, therefore limiting the credit risk of the Company in connection with the Digital Assets (held in
support of the Digital Securities).
Further detail in respect of custodial risk is presented below under Risk Factors Relating to Digital Assets.
(b) Risk Factors Relating to Digital Assets
i)
Custodial risk
Custodial risk is managed by the Company by subjecting each Custodian to a detailed due diligence review
prior to their appointment, as well as undertaking regular due diligence updates and undertaking ongoing
monitoring of their service. The Custodians are not required to take out insurance and neither is the
Trustee. Accordingly, there is a risk that the secured Digital Assets could be stolen and the Company would
not be able to satisfy its obligations in respect of the Digital Securities. The Company engages two
Custodians, namely Swissquote Bank Ltd (“Swissquote”) and Coinbase Custody Trust Company, LLC
(“Coinbase Custody”). All Digital Assets are stored in secured wallets and in addition the Company spreads
its risk on WisdomTree Physical Bitcoin and WisdomTree Physical Ethereum by holding certain exposures
to Bitcoin and Ethereum respectively in wallets with both Custodians. The Company monitors the level of
Bitcoin and Ethereum held in these wallets daily using internally determined limits in order to monitor
exposure and minimise risk and has adopted similar risk measures for all other digital assets held in the
Baskets as volumes increase. Currently Coinbase Custody is the sole custodian of all other digital assets
held in the Baskets. The Moody’s credit rating for Coinbase Custody was Ba3 and Swissquote is not rated
by any agency, however is a listed Company.
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12.Financial Risk Management (continued)
(b) Risk Factors Relating to Digital Assets (continued)
ii)
Forking
A fork is a change of the blockchain protocol version which is distinct from the main one. It can cause
several risks such as the trading may be temporarily or indefinitely suspended and the prices can be
negatively impacted. A hard fork may result in Digital Currency held as collateral with respect to Digital
Securities becoming a new forked digital asset. If this were to happen then it could reduce the amount of
Digital Currency held as collateral with the relevant Custodian, the coin entitlement of a Security holder, and
the value of the Security holder’s holding of Digital Securities.
Security holders may not receive the benefit of the forked currency depending on the Custodian and the
Company’s policy. There is no obligation for the Custodians or the Company to support the inclusion of any
forked assets. The reasons of the fork and the occurrence of this one for a specific Digital Currency can be
different and unique so it can cause several risks in terms of trading, operation, settlement, security, pricing
and so on.
The Company may seek not to obtain any forked assets even in the case where they are supported by a
Custodian and/or may compulsorily redeem any Digital Securities whose underlying digital assets are
subject to a fork event. As a result, holders of Digital Securities may lose value or not be able to participate
in any upside of forked assets.
iii)
Airdrops
An airdrop occurs when the issuer of a new digital asset declares to the holder of another specific digital
asset that they will be entitled to claim for free a quantity of the new digital asset because they are holding
this specific existing digital asset. If an airdrop occurs intended to benefit holders of a Digital Asset, then the
ability of a holder of Digital Securities relating to such Digital Asset to participate in the airdrop will depend
on the support of the Custodian. There is no obligation on the Custodian to support any airdrop or hold the
airdropped digital asset and so there is no certainty that holders of Digital Securities will be able to obtain
any airdropped digital currencies or realise any value from them. Airdrops are primarily used to promote
awareness of new digital asset and do not impact the existing digital asset.
Carrying amounts of the Digital Assets and Digital Assets Held in Respect of Management Fees and Digital
Assets awaiting settlement best represent the maximum credit risk exposure at the Statement of Financial
Position date.
(c) Risk of Slashing
(i)
Slashing
Slashing is a penalty imposed on proof-of-stake blockchain designed to deter dishonest and malicious
validator behaviour activity. A Validator is penalised and penalties could result in a loss of assets or being
excluded from the network. Slashing is triggered by one of two conditions, validator downtime or double
signing. Downtime is where a validator fails to participate in the consensus process as required by the
network and double signing occurs when a validating entity submits two signed messages for the same
block. The network detects this behaviour and triggers slashing to penalise the validator for attempting to
compromise the consensus mechanism. Typically, though, downtime results in a very small penalty being
imposed (simply not earning staking income) whereas double signing can incur a much higher penalties.
These penalties are passed to the holder of the assets in the same way that earned staking income are
shared. The Issuer stakes its assets with Coinbase Validators and its Service Providers and the risk of
slashing is considered materially low. Coinbase reports zero instances of their validators being slashed and
in instances where such penalties result from Coinbase Validator due to a mistake made by Coinbase or
any of its third party validators, Coinbase acknowledges per agreement to fully compensate the Issuer. The
risk of slashing under the current arrangement is therefore considered a low risk to the Issuer.
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12.Financial Risk Management (continued)
(d) Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its
financial liabilities as they fall due. The Company’s receivables and payables in respect of order fees are all
payable on demand and generally settled on a short-term basis. In addition, amounts in respect of the order
fees are transferred from the relevant counterparties directly to ManJer and there are no cash flows through the
Company other than on rebalancing events of the Baskets. In the case of a rebalancing event, where a trade
cannot be placed between direct pairs of digital currencies, the Custodian will sell specific amounts of one
digital currency to US Dollars, using the proceeds to buy another digital currency. This buying and selling of US
Dollars nets off and the Company will not have a cash surplus or shortfall. The Company’s Digital Assets
receivable and payable in respect of Management Fees are also payable on demand and generally settled on a
short term basis.
The Digital Securities do not have a contractual maturity date and will only be redeemed at the request of the
holder of the security through an Authorised Participant, which may be requested at any time, with the
transaction settling through the transfer of the required Digital Assets two days after the transaction date, or in
the case of a compulsory redemption, by either transferring the required Digital Assets, or by realising those
Digital Assets for cash (on an active market) and settling the cash proceeds to holders on a short term basis.
Generally, only Security Holders who have entered into an authorised participant agreement with the Company
can submit applications and redemptions directly with the Company.
In certain circumstances, for example, in the event of volatility in the relevant markets, the Company and/or
Authorised Participants may seek to limit or restrict the ability of Authorised Participants to apply for new, or to
redeem Digital Securities. The Company will inform the holders of the relevant Digital Securities of any such
actions by Regulatory Information Service (“RIS”) announcement.
When Digital Securities are redeemed, the Company returns the corresponding amount of Digital Assets
determined by the Entitlement of those Digital Securities, therefore the redemption of Digital Securities would
not impact the liquidity of the Company. The Company currently stakes Solana and Ethereum which places
short term restrictions on the ability of the Company to transfer the assets in order to fund redemptions. The
Company closely monitor redemption activity and can delay settlement of redemptions until a epoch ends and
the Company is able to unstake. The Company also stakes assets in multiple wallets allowing it to unstake only
necessary amounts to fund redemptions. As such the Company manages liquidity risk presented by staked
assets by staking in multiple wallets and staking a portion of the assets while still having the ability to unstake if
required.
Consequently, the Company has not presented any tabular information in respect of liquidity risk.
(e)Settlement Risk
Settlement risk primarily refers to the risk that an Authorised Participant will default on its contractual
obligations resulting in financial loss.
The directors believe that settlement risk would only be caused by the risk of the Company’s trading
counterparty not delivering Digital Assets or Digital Securities on the settlement date. The Digital Securities
settle through the CREST system. The directors feel that this risk is mitigated as Digital Securities are not
issued until the required amount of Digital Asset has been received in the Custodian account, and Digital
Assets are not transferred until the relevant Digital Securities have been delivered in CREST. As a result each
transaction does not settle until both parties have fulfilled their contractual obligations.
Amounts outstanding in respect of positions yet to settle are disclosed in notes 7 and 8.
(f) Market Risk
Market risk is the risk that changes in market prices (such as digital asset prices) will affect the Company’s
income or the value of its financial instruments held or issued.
The value of the Company’s liability in respect of the Digital Securities fluctuates according to the Digital Asset
prices and the risk of such change in price is managed by the Company by holding Digital Assets in the same
quantity as its liability. As this is based on the Contractual values, the Company bears no residual risk from a
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12.Financial Risk Management (continued)
(f) Market Risk (continued)
change in the price of Digital Assets (held to support the Digital Securities). Refer to note 8 for the further
details regarding fair values.However, there is an inherent risk from the point of view of holders as the price of
the Digital Assets and the value of the Digital Securities may vary widely due to, amongst other things,
changing supply or demand for Digital Assets, government and monetary policy or intervention and global or
regional political, economic or financial events.
The market price of Digital Securities is (and will remain) a function of supply and demand amongst investors
wishing to buy and sell Digital Securities and the bid or offer spread that the market makers are willing to quote.
This is highlighted in note 8, and below under the Fair Value Hierarchy.
(g) Geopolitical Risk
The Board continues to monitor and assess the impact of geopolitical conflicts on the Company’s portfolio
operations and valuation and will take any further actions needed or as required under the terms of the
Prospectus, as facts and circumstances are subject to change and may be specific to investment strategies
and jurisdictions. Whilst it is not currently possible to predict future market conditions and therefore determine if
any further action may be required on any other classes of Digital Securities, the action that may be required
includes, but is not limited to, temporarily not accepting applications for Digital Securities, temporarily
suspending Digital Securities from trading on Stock Exchanges or a compulsory redemption of Digital
Securities. The Company has not initiated any of these further actions to date. Any such action will be
undertaken in accordance with the constitutive documents of the Digital Securities.
(h)Sensitivity Analysis
IFRS 7 requires disclosure of a sensitivity analysis for each type of market risk to which the entity is exposed to
at the reporting date, showing how profit or loss and equity would have been affected by a reasonably possible
change to the relevant risk variable.
The Company’s obligations and liability in respect of Digital Securities relates to its contractual obligations to
issue and redeem Digital Securities in exchange for Digital Assets as determined by the Entitlement of each
class of Digital Security on each trading day. The fair value of each creation and redemption of Digital Securities
is recorded using the Quoted Price on the transaction date. As a result the Company’s contractual and
economic liability in connection with the issue of Digital Securities is matched by movements in the value of the
corresponding Digital Asset. Consequently, commercially the Company does not have any net exposure to
market price risk.
The profit or loss, and other comprehensive income would be impacted by movements in the Quoted Price.
Using past performance as a best estimate for future performance, the directors consider the greatest
percentage change in the daily price for the last trading year and believe this is the best guide for the sensitivity
in each Digital Asset. As such, even though the price of a Digital Asset between the start of the year and the end
of a reporting year may vary considerably, such change is expected to occur over a period of time and cannot
be forecasted with any certainty. The table below indicates the highest daily recorded change in the Quoted
Price of the Digital Asset and Digital Securities for the year ended 31 December 2023.
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12.Financial Risk Management (continued)
(h) Sensitivity Analysis (continued)
The sensitivity is linear and the following table summarises the impact movements in the Quoted Price of the
Digital Assets in relation to US Dollars and the Market Price of the Digital Securities as at 31 December 2023,
with all other variables held constant, on the profit or loss and other comprehensive income for the period:
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12.
Financial Risk Management (continued)
(h) Sensitivity Analysis (continued)
The table below indicates the highest daily recorded change in the Quoted Price of the Digital Asset and Digital
Securities for the year ended 31 December 2022.
The sensitivity is linear and the following table summarises the impact movements in the Quoted Price of the
Digital Assets in relation to US Dollars and the Market Price of the Digital Securities as at 31 December 2022,
with all other variables held constant, on the profit or loss and other comprehensive income for the period:
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12.
Financial Risk Management (continued)
(i)Capital Management
The primary objective of the Company’s capital management policy is to ensure that it maintains sufficient
resources for operational purposes. The capital being managed is the Stated Capital as presented in the
Statement of Changes in Equity. Retained Earnings and the Revaluation Reserve, as presented in the
Statement of Changes in Equity, are not considered managed capital as (other than the impact of Management
Fees) these balances relate to unrealised gains and losses on Digital Assets (held to support the Digital
Securities) and Digital Securities, which are reversed on a subsequent redemption of the Digital Securities and
the related transfer of Digital Assets and will therefore not be realised. The Company is not subject to any
capital requirements imposed by a regulator and there were no changes in the Company’s approach to capital
management during the period.
The Company’s principal activity is the issue and listing of Digital Securities. These securities are issued and
redeemed as demand requires. The Company holds a corresponding amount of Digital Assets which matches
the total liability of the Digital Securities issued. ManJer supplies or arranges the supply of all management and
administration services to the Company and pays all management and administration costs of the Company,
including Trustee and Custodian Fees. In return for these services the Company pays a Management Fee,
which under the terms of the service agreement is equal to the aggregate of the Management Fee and order
fees earned.
As all Digital Securities on issue are supported by an equivalent amount of Digital Assets held by the Custodian
and the running costs of the Company were paid by ManJer, the directors of the Company consider the capital
management and its current capital resources are adequate to maintain the ongoing listing and issue of Digital
Securities.
(j)
Fair Value Hierarchy
The levels in the hierarchy are defined as follows:
Categorisation within the hierarchy is determined on the basis of the lowest level input that is significant to the
fair value measurement of each relevant asset/liability.
The Company is required to utilise the available on market price as the Digital Securities are quoted and
actively traded on the open market. Therefore, Digital Securities are classified as Level 1 financial liabilities.
The Company holds Digital Assets to support the Digital Securities. Digital Assets are revalued to fair value
using the Quoted Price. Digital Assets are classified as a level 1 asset, as the value is from actively traded
quoted prices”.
The Management Fees Payable is valued by converting the Digital Assets accrued and payable into the
functional currency by application of the Quoted Price on the period end date, and is therefore classified as a
Level 2 financial liability.
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12. Financial Risk Management (continued)
(j)
Fair Value Hierarchy (continued)
The categorisation of the Company’s assets and liabilities are as shown below:
The Digital Securities are recognised at fair value upon initial recognition and measured at fair value in line with
the Company’s accounting policy. The Digital Assets (held to support the Digital Securities) are recognised at
cost upon initial recognition and revalued to fair value in line with the Company’s accounting policy. Transfers
between levels would be recognised if there was a change in the accounting policies adopted, or should there
be changes in circumstances that prevented public information in respect of Level 1 inputs from being
available. Any such transfers would be recognised on the date of the change in circumstances that cause the
transfer. There were no transfers or reclassifications between Levels for any of the assets or liabilities during
the period.
13.
Ultimate Controlling Party
In accordance with the disclosure requirements of IFRS the directors have determined that no entity meets the
definition of ultimate controlling party. The holder of issued equity shares is HoldCo, a Jersey registered
company. WisdomTree Inc is the ultimate controlling party of HoldCo.
14.
Events Occurring After the Reporting Period
From 22 January 2024, Management fee percentage was reduced according to the below table.
The new Management Expense Ratio (“MER”) as shown below:
There have been no significant events that have occurred since the end of the reporting period up to the date of
signing the Financial Statements which would impact on the financial position of the Company.
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15.
Non-GAAP and Non-Statutory Information
As a result of the mismatch in the valuation of Digital Assets (held to support the Digital Securities) and Digital
Securities (as disclosed in notes 7 and 8) the profits and losses and comprehensive income of the Company
presented in the Statement of Profit or Loss and Other Comprehensive Income reflect gains and losses which
represent the movement in the cumulative difference between the value of the Digital Assets and the price of
Digital Securities. The Statement of Changes in Equity also reflects the fair value movements on both the
Digital Assets (held to support the Digital Securities) and the Digital Securities.
These gains or losses on the difference between the value of the Digital Assets (held to support the Digital
Securities) and the price of Digital Securities would be reversed on a subsequent redemption of the Digital
Securities and transfer of the corresponding Digital Assets. Furthermore, each class of Digital Security is
issued under limited recourse arrangements whereby the holders have recourse only to the relevant Digital
Assets (held to support the Digital Securities) and not to the digital assets of any other class of Digital Security
or to the Company.
The Company has entered into contractual obligations to issue and redeem Digital Securities in exchange for
Digital Assets as determined by the Entitlement of each class of Digital Security on each trading day. As
described in note 8, the Company’s contractual liability in respect of Digital Securities is determined by applying
the Quoted Price of the underlying Digital Asset to the Entitlement of the Digital Security and the total number of
Digital Securities in issue.
The mismatched accounting values are as shown below:
To reflect the commercial results, the Company has presented below a non-GAAP and non-Statutory
Statement of Profit or Loss and Total Comprehensive Income and Statement of Changes in Equity for the
period which reflect an Adjustment from Market Value of Digital Securities to Value represented by underlying
Digital Assets, together with those gains or losses being transferred to a separate reserve which is deemed
non-distributable.
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15. Non-GAAP and Non-Statutory Information (continued)
(a)
Non-GAAP and Non-Statutory Statement of Profit or Loss and Other Comprehensive Income
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15. Non-GAAP and Non-Statutory Information (continued)
(b)
Non-GAAP and Non-Statutory Statement of Changes in Equity
* Due to a misallocation between Retained Earnings and Revaluation Reserves, which reflected movements in fair value of Digital Assets net through Revaluation
Reserves. It has been adjusted to correctly record the movement of $453,706 through Retained Earnings. There is no other impact through the financial statements of
this adjustment.
3 This represents the difference in movement between the Value of Digital Assets (held to support the Digital Securities) and the price of Digital Securities for each reporting date.
4 The residual balances in Retained Earnings and the Revaluation Reserve represent the cumulative fair value movements of Digital Assets Held in Respect of Management Fees,
compared to the cumulative fair value movements arising on Management Fee Payables.
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15.
Non-GAAP and Non-Statutory Information (continued)
(c)
Non-GAAP and Non-Statutory Statement of Changes in Equity (continued)
5 This represents the difference in movement between the Value of Digital Assets (held to support the Digital Securities) and the price of Digital Securities for each reporting date.
6 The residual balances in Retained Earnings and the Revaluation Reserve represent the cumulative fair value movements of Digital Assets Held in Respect of Management Fees,
compared to the cumulative fair value movements arising on Management Fee Payables.
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