The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our audited financial statements and related notes included elsewhere in this Annual Report, which have been prepared in accordance with generally accepted accounting principles inthe United States ("U.S. GAAP"). The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report, particularly in "Item 1A. Risk Factors" and "Forward-Looking Statements."
Trust Overview
The Trust is a passive entity that is managed and administered by the Sponsor
and does not have any officers, directors or employees. The Trust holds LTC and,
from time to time on a periodic basis, issues Creation Baskets in exchange for
deposits of LTC. As a passive investment vehicle, the Trust's investment
objective is for the value of the Shares (based on LTC per Share) to reflect the
value of LTC held by the Trust, determined by reference to the Index Price, less
the Trust's expenses and other liabilities. While an investment in the Shares is
not a direct investment in LTC, the Shares are designed to provide investors
with a cost-effective and convenient way to gain investment exposure to LTC. The
Trust is not managed like a business corporation or an active investment
vehicle.
As of June 30,
2022 2021 2020
Number of Shares authorized Unlimited Unlimited Unlimited
Number of Shares outstanding 17,204,700 16,812,000 509,400
Number of Shares freely tradable(1) 15,968,836 393,585 0
Number of beneficial holders owning
at least 100 Shares(2) 66 337 30
Number of holders of record(2) 66 337 30
(1)
Includes the total number of Shares that are not restricted securities as such
term is defined under Rule 144.
(2)
Includes Cede & Co. as nominee for DTC for the Shares traded on OTCQX.
Therefore, this number does not include the individual holders who have
bought/sold Shares on OTCQX or transferred their eligible Shares to their
brokerage accounts.
Critical Accounting Policies and Estimates
Investment Transactions and Revenue Recognition
The Trust considers investment transactions to be the receipt of LTC for Share creations and the delivery of LTC for Share redemptions or for payment of expenses in LTC. At this time, the Trust is not accepting redemption requests from shareholders. The Trust records its investment transactions on a trade date basis and changes in fair value are reflected as net change in unrealized appreciation or depreciation on investments. Realized gains and losses are calculated using the specific identification method. Realized gains and losses are recognized in connection with transactions including settling obligations for the Sponsor's Fee in LTC.
Principal Market and Fair Value Determination
To determine which market is the Trust's principal market (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Trust's NAV, the Trust followsFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 820-10, which outlines the application of fair value accounting. ASC 820-10 determines fair value to be the price that would be received for LTC in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Trust to assume that LTC is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust only receives LTC from the Authorized Participant and does not itself transact on any Digital Asset Markets. Therefore, the Trust looks to the Authorized Participant when assessing entity-specific and market-based volume and level of activity for Digital Asset Markets. The Authorized Participant transacts in a Brokered Market, a Dealer Market, Principal-to-Principal Markets and Exchange Markets, each as defined in the FASB ASC Master Glossary. The Authorized Participant, as a related party of the Sponsor, provides information about the Digital Asset Markets on which it transacts to the Trust. In determining which of the eligible Digital Asset Markets is the Trust's principal market, the Trust reviews these criteria in the following order:
•
First, the Trust reviews a list of Digital Asset Markets and excludes any
Digital Asset Markets that are non-accessible to the Trust and the Authorized
Participant(s). Neither the Trust nor the Authorized Participant have access to
Digital Asset
73
-------------------------------------------------------------------------------- Exchanges that do not have a BitLicense and have access only to non-Digital Asset Exchange Markets that the Authorized Participant reasonably believes are operating in compliance with applicable law, including federal and state licensing requirements, based upon information and assurances provided to it by each market.
•
Second, the Trust sorts the remaining Digital Asset Markets from high to low by
entity-specific and market-based volume and activity of LTC traded on each
Digital Asset Market in the trailing twelve months.
•
Third, the Trust then reviews intra-day pricing fluctuations and the degree of variances in price on Digital Asset Markets to identify any material notable variances that may impact the volume or price information of a particular Digital Asset Market.
•
Fourth, the Trust then selects a Digital Asset Market as its principal market based on the highest market volume, activity and price stability in comparison to the other Digital Asset Markets on the list. Based on information reasonably available to the Trust, Exchange Markets have the greatest volume and level of activity for the asset. The Trust therefore looks to accessible Exchange Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to determine its principal market. As a result of the aforementioned analysis, an Exchange Market has been selected as the Trust's principal market. The Trust determines its principal market (or in the absence of a principal market the most advantageous market) annually and conducts a quarterly analysis to determine (i) if there have been recent changes to each Digital Asset Market's trading volume and level of activity in the trailing twelve months, (ii) if any Digital Asset Markets have developed that the Trust has access to, or (iii) if recent changes to each Digital Asset Market's price stability have occurred that would materially impact the selection of the principal market and necessitate a change in the Trust's determination of its principal market. The cost basis of the investment in LTC recorded by the Trust for financial reporting purposes is the fair value of LTC at the time of transfer. The cost basis recorded by the Trust may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors.
Investment Company Considerations
The Trust is an investment company for GAAP purposes and follows accounting and reporting guidance in accordance with the FASB ASC Topic 946, Financial Services -Investment Companies. The Trust uses fair value as its method of accounting for LTC in accordance with its classification as an investment company for accounting purposes. The Trust is not a registered investment company under the Investment Company Act of 1940. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and these differences could be material.
Review of Financial Results
Financial Highlights for the Years ended
(All amounts in the following table and the subsequent paragraphs, except Share
and per Share, LTC and price of LTC amounts, are in thousands)
For the Year Ended
2022 2021
2020
Net realized and unrealized (loss) gain on investment$ (138,938 ) $ 78,835 $ (753 ) Net (decrease) increase in net assets resulting from operations$ (144,295 ) $ 74,796 $ (770 ) Net assets$ 79,397 $ 219,034 $ 1,977 Net realized and unrealized loss on investment in LTC for the year endedJune 30, 2022 was ($138,938 ) which includes a realized gain of$1,713 on the transfer of LTC to pay the Sponsor's Fee and net change in unrealized depreciation on investment in LTC of ($140,651 ). Net realized and unrealized loss on investment in LTC for the year was driven by LTC price depreciation from$141.61 per LTC as ofJune 30, 2021 to$51.43 per LTC as ofJune 30, 2022 . Net decrease in net assets resulting from operations was ($144,295 ) for the year endedJune 30, 2022 , which consisted of the net realized and unrealized loss on investment in LTC, plus the Sponsor's Fee of$5,357 . Net assets decreased to$79,397 atJune 30, 2022 , a 64% decrease for the year. The decrease in net assets resulted from the aforementioned LTC price depreciation and the withdrawal of approximately 39,023 LTC to pay the foregoing Sponsor's Fee, partially offset by the contribution of approximately 36,070 LTC with a value of$4,658 to the Trust in connection with Share creations during the period. 74 -------------------------------------------------------------------------------- Net realized and unrealized gain on investment in LTC for the year endedJune 30, 2021 was$78,835 , which includes a realized gain of$2,140 on the transfer of LTC to pay the Sponsor's Fee and net change in unrealized appreciation on investment in LTC of$76,695 . Net realized and unrealized gain on investment in LTC for the year was driven by LTC price appreciation from$41.15 per LTC as ofJune 30, 2020 to$141.61 per LTC as ofJune 30, 2021 . Net increase in net assets resulting from operations was$74,796 for the year endedJune 30, 2021 , which consisted of the net realized and unrealized gain on investment in LTC, less the Sponsor's Fee of$4,039 . Net assets increased to$219,034 atJune 30, 2021 , a 10,977% increase for the year. The increase in net assets resulted from the aforementioned LTC price appreciation and the contribution of approximately 1,523,144 LTC with a value of$142,261 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of 24,457 LTC to pay the foregoing Sponsor's Fee. Net realized and unrealized loss on investment in LTC for the year endedJune 30, 2020 was ($753 ), which includes a realized loss of ($12 ) on the transfer of LTC to pay the Sponsor's Fee,$1 net change in unrealized depreciation on the Sponsor's Fee payable, and ($742 ) net change in unrealized depreciation on investment in LTC. Net realized and unrealized loss on investment in LTC was driven by LTC price depreciation from$129.14 per LTC as ofJune 30, 2019 to$41.15 per LTC as ofJune 30, 2020 . Net decrease in net assets resulting from operations was ($770 ) for the year endedJune 30, 2020 , which consisted of the net realized and unrealized loss on investment in LTC, plus the Sponsor's Fee of$17 . Net assets increased to$1,977 atJune 30, 2020 , a 133% increase for the year. The increase in net assets resulted from the contribution of approximately 41,812 LTC with a value of$1,899 to the Trust in connection with Share creations, partially offset by the aforementioned LTC price depreciation and the withdrawal of 367 LTC to pay the foregoing Sponsor's Fee.
Cash Resources and Liquidity
The Trust has not had a cash balance at any time since inception. When selling
LTC, Incidental Rights and/or IR Virtual Currency in the Digital Asset Market to
pay Additional Trust Expenses, the Sponsor endeavors to sell the exact number of
LTC, Incidental Rights and/or IR Virtual Currency needed to pay expenses in
order to minimize the Trust's holdings of assets other than LTC. As a
consequence, the Sponsor expects that the Trust will not record any cash flow
from its operations and that its cash balance will be zero at the end of each
reporting period. Furthermore, the Trust is not a party to any off-balance sheet
arrangements.
In exchange for the Sponsor's Fee, the Sponsor has agreed to assume most of the
expenses incurred by the Trust. As a result, the only ordinary expense of the
Trust during the periods covered by this Annual Report was the Sponsor's Fee.
The Trust is not aware of any trends, demands, conditions or events that are
reasonably likely to result in material changes to its liquidity needs.
Selected Operating Data
For the Year Ended June 30,
2022 2021 2020
(All LTC balances are rounded to the nearest whole LTC)
Litecoin:
Opening balance 1,546,739 48,052 6,607
Creations 36,070 1,523,144 41,812
Sponsor's Fee, related party (39,023 ) (24,457 ) (367 )
Closing balance 1,543,786 1,546,739 48,052
Accrued but unpaid Sponsor's Fee,
related party - - -
Net closing balance 1,543,786 1,546,739 48,052
Number of Shares:
Opening balance 16,812,000 509,400 67,900
Creations 392,700 16,302,600 441,500
Closing balance 17,204,700 16,812,000 509,400
June 30,
2022 2021 2020
Price of LTC on principal market(1)
NAV per Share(2)
$ 4.61 $ 13.03 $ 3.88 Index Price(3)$ 51.27 $ 141.54 $ 41.16
(1)
The Trust performed an assessment of the principal market at
and 2020, respectively, and identified the principal market as Coinbase Pro.
75 --------------------------------------------------------------------------------
(2)
As ofJune 30, 2022 , 2021 and 2020, respectively, the NAV per Share was calculated using the fair value of LTC based on the price provided byCoinbase Pro, the Digital Asset Exchange that the Trust currently considers its principal market, as of4:00 p.m. ,New York time, on the valuation date. (3)The Trust's Digital Asset Holdings per Share is derived from the Index Price as represented by the Index as of4:00 p.m. ,New York time, on the valuation date.The Trust's Digital Asset Holdings per Share is calculated using a non-GAAP methodology where the price is derived from multiple Digital Asset Exchanges. See "Item 1. Business-Overview of the LTC Industry and Market-LTC Value-The Index and the Index Price" for a description of the Index and the Index Price. The Digital Asset Exchanges included in the Index as ofJune 30, 2022 , 2021 and 2020 were Coinbase Pro,Bitstamp , LMAX Digital and Kraken. EffectiveJuly 23, 2022 , the Index Provider added FTX.US to the Index due to the exchange meeting the minimum liquidity requirements and did not remove any Constituent Exchanges as part of its scheduled quarterly review. For accounting purposes, the Trust reflects creations and the LTC receivable with respect to such creations on the date of receipt of a notification of a creation but does not issue Shares until the requisite number of LTC is received. At this time, the Trust is not accepting redemption requests from shareholders. Subject to receipt of regulatory approval from theSEC and approval by the Sponsor in its sole discretion, the Trust may in the future operate a redemption program. The Trust currently has no intention of seeking regulatory approval to operate an ongoing redemption program. As ofJune 30, 2022 , the Trust had a net closing balance with a value of$79,149,892 , based on the Index Price (non-GAAP methodology). As ofJune 30, 2022 , the Trust had a total market value of$79,396,898 , based on the principal market (Coinbase Pro). As ofJune 30, 2021 , the Trust had a net closing balance with a value of$218,925,430 , based on the Index Price (non-GAAP methodology). As ofJune 30, 2021 , the Trust had a total market value of$219,033,701 , based on the principal market (Coinbase Pro).
As of
2020
market (Coinbase Pro).
Historical
As movements in the price of LTC will directly affect the price of the Shares, investors should understand recent movements in the price of LTC. Investors, however, should also be aware that past movements in the LTC price are not indicators of future movements. Movements may be influenced by various factors, including, but not limited to, government regulation, security breaches experienced by service providers, as well as political and economic uncertainties around the world. The following chart illustrates the movement in theTrust's Digital Asset Holdings per Share versus the Index Price and the Trust's net asset value per share as calculated in accordance with GAAP fromMarch 1, 2018 (date of the first Creation Basket of the Trust) toJune 30, 2022 . For more information on the determination of theTrust's Digital Asset Holdings , see "Item 1. Business-Overview of the LTC Industry and Market-LTC Value-The Index and the Index Price." 76
--------------------------------------------------------------------------------
[[Image Removed: img85742971_0.jpg]]
The following table illustrates the movements in the Index Price from the
beginning of the Trust's operations on March 1, 2018 to June 30, 2022 . Since the
beginning of the Trust's operations, the Index Price has ranged from $22.48 to
$371.71 , with the straight average being $100.09 through June 30, 2022 . The
Sponsor has not observed a material difference between the Index Price and
average prices from the constituent Digital Asset Exchanges individually or as a
group.
High Low
Last
End of business
Period Average Index Price Date Index Price Date period day
March 1, 2018 (the inception
of the Trust's operations)
to June 30, 2018 $ 135.88 $ 213.58 3/1/2018 $ 73.22 6/29/2018 $ 79.72 $ 73.22
Twelve months ended June 30,
2019 $ 62.89 $ 142.00 6/22/2019 $ 22.48 12/14/2018 $ 129.07 $ 120.61
Twelve months ended June 30,
2020 $ 58.75 $ 125.03 7/4/2019 $ 32.16 3/16/2020 $ 41.16 $ 41.16
Twelve months ended June 30,
2021 $ 129.83 $ 371.71 5/11/2021 $ 40.76 7/2/2020 $ 141.54 $ 141.54
Twelve months ended June 30,
2022 $ 137.02 $ 275.50 11/10/2021 $ 42.68 6/18/2022 $ 51.27 $ 51.27
March 1, 2018 (the inception
of the Trust's operations)
to June 30, 2022 $ 100.09 $ 371.71 5/11/2021 $ 22.48 12/14/2018 $ 51.27 $ 51.27
The following table illustrates the movements in the Digital Asset Market price
of LTC, as reported on the Trust's principal market, from the beginning of the
Trust's operations on March 1, 2018 to June 30, 2022 . Since the beginning of the
Trust's operations, the price of LTC has ranged from $22.47 to $371.96 , with the
straight average being $100.10 through June 30, 2022 :
77
--------------------------------------------------------------------------------
High Low
Digital Digital
Asset Asset Last
Market Market End of business
Period Average Price Date Price Date period day
March 1, 2018 (the inception
of the Trust's operations)
to June 30, 2018 $ 135.94 $ 213.49 3/1/2018 $ 73.19 6/29/2018 $ 79.71 $ 73.19
Twelve months ended June 30,
2019 $ 62.90 $ 141.89 6/22/2019 $ 22.47 12/14/2018 $ 129.14 $ 120.57
Twelve months ended June 30,
2020 $ 58.75 $ 125.11 7/4/2019 $ 32.27 3/16/2020 $ 41.15 $ 41.15
Twelve months ended June 30,
2021 $ 129.85 $ 371.96 5/11/2021 $ 40.81 7/2/2020 $ 141.61 $ 141.61
Twelve months ended June 30,
2022 $ 137.02 $ 275.95 11/10/2021 $ 42.61 6/18/2022 $ 51.43 $ 51.43
March 1, 2018 (the inception
of the Trust's operations)
to June 30, 2022 $ 100.10 $ 371.96 5/11/2021 $ 22.47 12/14/2018 $ 51.43 $ 51.43
Secondary Market Trading
The Trust's Shares have been quoted on OTCQX under the symbol LTCN since August
18, 2020 . The price of the Shares as quoted on OTCQX has varied significantly
from the Digital Asset Holdings per Share. From August 18, 2020 to June 30,
2022 , the maximum premium of the closing price of the Shares quoted on OTCQX
over the value of the Trust's Digital Asset Holdings per Share was 5,893% and
the average premium was 1,216%, and the maximum discount of the closing price of
the Shares quoted on OTCQX below the value of the Trust's Digital Asset Holdings
per share was 47% and the average discount was 31%. As of June 30, 2022 , the
Trust's Shares were quoted on OTCQX at a discount of 47% to the Trust's Digital
Asset Holdings per Share. The closing price of the Shares, as quoted on OTCQX at
4:00 p.m. , New York time, on each business day, has been quoted at a discount on
185 days.
The following table sets out the range of high and low closing prices for the
Shares as reported by OTCQX, the Trust's net asset value per Share calculated in
accordance with GAAP and the Trust's Digital Asset Holdings per Share for each
of the quarters since August 18, 2020 .
High Low
Digital Asset Digital Asset
NAV per Holdings per NAV per Holdings per
OTCQX Share(1) Share(2) OTCQX Share(1) Share(2)
Calendar Year 2020
Third quarter 72.00 $ 6.25 $ 6.26 23.00 $ 4.06 $ 4.05
Fourth quarter 500.00 $ 12.45 $ 12.45 29.50 $ 4.19 $ 4.20
Calendar Year 2021
First quarter 396.00 $ 22.23 $ 22.23 112.00 $ 11.78 $ 11.79
Second quarter 445.99 $ 34.34 $ 34.32 82.72 $ 11.00 $ 11.02
Third quarter 87.52 $ 20.46 $ 20.46 13.13 $ 10.00 $ 10.00
Fourth quarter 24.35 $ 25.16 $ 25.12 8.96 $ 13.09 $ 13.09
Calendar Year 2022
First quarter 9.15 $ 13.74 $ 13.74 5.04 $ 8.79 $ 8.81
Second quarter 7.02 $ 11.43 $ 11.43 2.46 $ 3.83 $ 3.83
(1)
The NAV is calculated using the fair value of LTC based on the price provided by
the Digital Asset Market that the Trust considers its principal market, which is
Coinbase Pro. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Critical Accounting Policies and
Estimates-Principal Market and Fair Value Determination."
(2)
The Trust's Digital Asset Holdings per Share is derived from the Index Price as
represented by the Index as of 4:00 p.m. , New York time, on the valuation date.
The Index Price is calculated using non-GAAP methodology and is not used in the
Trust's financial statements. Effective July 23, 2022 , the Index Provider added
FTX.US to the Index due to the exchange meeting the minimum liquidity
requirements and did not remove any Constituent Exchanges as part of its
scheduled quarterly review. See "Item 1. Business-Valuation of LTC and
Determination of the Trust's Digital Asset Holdings ."
78
--------------------------------------------------------------------------------
The following chart sets out the historical closing prices for the Shares as
reported by OTCQX and the
LTCN Premium/(Discount): LTCN Share Price vs.
($)
[[Image Removed: img85742971_1.jpg]]
The following chart sets out the historical premium and discount for the Shares
as reported by OTCQX and the
LTCN Premium/(Discount): LTCN Share Price vs.
(%)
[[Image Removed: img85742971_2.jpg]]
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