The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with generally accepted accounting principles 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 set forth under Part II, Item 1A. Risk Factors in this Quarterly Report and under "Risk Factors" or the other sections of the Information Statement.
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 (the "Index Price") of an LTC inU.S. dollars calculated by applying a weighting algorithm to the price and trading volume data for the immediately preceding 24-hour period as of4:00 p.m. New York time derived from the selected digital asset exchanges that are reflected in the Index on such trade date, less the Trust's expenses and other liabilities. To date, the Trust has not met its investment objective and the Shares quoted on OTCQX have not reflected the value of LTC held by the Trust, less the Trust's expenses and other liabilities, but instead have traded at both premiums and discounts to such value, which at times have been substantial. The Trust is not managed like a business corporation or an active investment vehicle.
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). The Trust or the Authorized Participant does not have access to Digital Asset Exchanges that do not have a BitLicense and has 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
15
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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 (unaudited)
Financial Highlights for the Three and Nine Months 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)
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
Net realized and unrealized
(loss) gain on investment in
Litecoin $ (31,031 ) $ 89,844 $ (26,099 ) $ 157,015
Net (decrease) increase in net
assets resulting from
operations $ (32,189 ) $ 88,378 $ (30,678 ) $ 155,069
Net assets $ 193,015 $ 290,569 $ 193,015 $ 290,569
Net realized and unrealized loss on investment in LTC for the three months ended
March 31, 2022 was ($31,031 ) which includes a realized gain of $260 on the
transfer of LTC to pay the Sponsor's Fee and net change in unrealized
depreciation on investment in LTC of ($31,291 ). Net realized and unrealized loss
on investment in LTC for the period was driven by LTC price depreciation from
$144.08 per LTC as of December 31, 2021 to $124.25 per LTC as of March 31, 2022 .
Net decrease in net assets resulting from operations was ($32,189 ) for the three
months ended March 31, 2022 , which consisted of the net realized and unrealized
loss on investment in LTC, plus the Sponsor's Fee of $1,158 . Net assets
decreased to $193,015 at March 31, 2022 , a 14% decrease for the three-month
period. The decrease in net assets resulted from the aforementioned LTC price
depreciation and the withdrawal of approximately 9,606 LTC to pay the foregoing
Sponsor's Fee.
Net realized and unrealized gain on investment in LTC for the three months ended
March 31, 2021 was $89,844 which includes a realized gain of $800 on the
transfer of LTC to pay the Sponsor's Fee and net change in unrealized
appreciation on investment in LTC of $89,044 . Net realized and unrealized gain
on investment in LTC for the period was driven by LTC price appreciation from
$124.49 per LTC as of December 31, 2021 to $193.22 per LTC as of March 31, 2021 .
Net increase in net assets resulting from operations was $88,378 for the three
months ended March 31, 2021 , which consisted of the net realized and unrealized
gain on investment in LTC, less the Sponsor's Fee of $1,466 . Net assets
increased to $290,569 at March 31, 2021 , a 102% increase for the three-month
period. The increase in net assets resulted from the aforementioned LTC price
appreciation and the contribution of approximately 357,788 LTC with a value of
$58,486 to the Trust in connection with Share creations during the period,
partially offset by the withdrawal of approximately 8,311 LTC to pay the
foregoing Sponsor's Fee.
Net realized and unrealized loss on investment in LTC for the nine months ended
March 31, 2022 was ($26,099 ) which includes a realized loss of $1,836 on the
transfer of LTC to pay the Sponsor's Fee and net change in unrealized
depreciation on investment in LTC of ($27,935 ). Net realized and unrealized loss
on investment in LTC for the period was driven by LTC price depreciation from
$141.61 per LTC as of June 30, 2021 to $124.25 per LTC as of March 31, 2022 . Net
decrease in net assets resulting from operations
16
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was ($30,678 ) for the nine months ended March 31, 2022 , which consisted of the
net realized and unrealized loss on investment in LTC, plus the Sponsor's Fee of
$4,579 . Net assets decreased to $193,015 at March 31, 2022 , a 12% decrease for
the nine-month period. The decrease in net assets resulted from the
aforementioned LTC price depreciation and and the withdrawal of approximately
29,371 LTC to pay the foregoing Sponsor's Fee, partially offset by the
contribution of approximately 36,070 LTC with a value of $4,659 to the Trust in
connection with Share creations during the period.
Net realized and unrealized gain on investment in LTC for the nine months ended
March 31, 2021 was $157,015 which includes a realized gain of $902 on the
transfer of LTC to pay the Sponsor's Fee and net change in unrealized
appreciation on investment in LTC of $156,113 . Net realized and unrealized gain
on investment in LTC for the period was driven by LTC price appreciation from
$41.15 per LTC as of June 30, 2020 to $193.22 per LTC as of March 31, 2021 . Net
increase in net assets resulting from operations was $155,069 for the nine
months ended March 31, 2021 , which consisted of the net realized and unrealized
gain on investment in LTC, less the Sponsor's Fee of $1,946 . Net assets
increased to $290,569 at March 31, 2021 , a 14595% increase for the nine-month
period. The increase in net assets resulted from the LTC price appreciation and
the contribution of approximately 1,470,824 LTC with a value of $133,523 to the
Trust in connection with Share creations during the period, partially offset by
the withdrawal of approximately 15,050 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 Quarterly 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
Three Months Ended March 31 ,
Nine Months Ended
2022 2021 2022 2021
LTC:
Opening balance 1,563,044 1,154,349 1,546,739 48,052
Creations - 357,788 36,070 1,470,824
Sponsor's Fee, related party (9,606 ) (8,311 ) (29,371 ) (15,050 )
Closing balance 1,553,438 1,503,826 1,553,438 1,503,826
Accrued but unpaid Sponsor's
Fee, related party - - - -
Net closing balance 1,553,438 1,503,826 1,553,438 1,503,826
Number of Shares:
Opening balance 17,204,700 12,392,400 16,812,000 509,400
Creations - 3,851,600 392,700 15,734,600
Closing balance 17,204,700 16,244,000 17,204,700 16,244,000
As of March 31,
2022 2021
Price of LTC on principal market (1) $ 124.25 $ 193.22
NAV per Share (2) $ 11.22 $ 17.89
Index Price (3) $ 124.36 $ 193.39
(1)
The Trust performed an assessment of the principal market atMarch 31, 2022 and 2021, and identified the principal market as Coinbase Pro. (2) As ofMarch 31, 2022 and 2021 the NAV per Share was calculated using the fair value of LTC based on the price provided by Coinbase 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 "-Historical Digital Asset Holdings and LTC Prices" in 17 -------------------------------------------------------------------------------- the Information Statement for further information on theTrust's Digital Asset Holdings andDigital Asset Holdings per Share. The Digital Asset Exchanges included in the Index as ofMarch 31, 2022 and 2021 were Coinbase Pro,Bitstamp , Kraken and LMAX Digital. 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 ofMarch 31, 2022 , the Trust had a net closing balance with a value of$193,185,586 , based on the Index Price (non-GAAP methodology). As ofMarch 31, 2022 , the Trust had a total market value of$193,014,707 , based on the principal market (Coinbase Pro). As ofMarch 31, 2021 , the Trust had a net closing balance with a total value of$290,824,928 , based on the Index Price (non-GAAP methodology). As ofMarch 31, 2021 , the Trust had a total market value of$290,569,278 , based on the principal 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 the Index Price, theTrust's Digital Asset Holdings per Share based on the Index Price and the Trust's NAV per Share as calculated in accordance with GAAP fromMarch 1, 2018 (date of the first Creation Basket of the Trust) toMarch 31, 2022 . [[Image Removed: img85740089_0.jpg]] The following table illustrates the movements in the Index Price from the beginning of the Trust's operations onMarch 1, 2018 toMarch 31, 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$101.27 . 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. 18 --------------------------------------------------------------------------------
High Low
Last
End of business
Period Average Index Price Date Index Price Date period day
March 1, 2018 (the first
Creation Basket of the
Trust) to March 31, 2018 $ 168.40 $ 213.58 3/1/2018 $
115.75
Twelve months ended
31, 2019
$ 69.47 $ 179.32 5/5/2018 $
22.48
Twelve months ended
31, 2020
$ 72.28 $ 142.00 6/22/2019 $
32.16
Twelve months ended
31, 2021
$ 85.26 $ 239.43 2/19/2021 $
37.57
Twelve months ended
31, 2022
$ 172.47 $ 371.71 5/11/2021$ 97.36 3/7/2022$ 124.36 $ 124.36 March 1, 2018 (the first Creation Basket of the Trust) to March 31, 2022$ 101.27 $ 371.71 5/11/2021 $
22.48
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 onMarch 1, 2018 toMarch 31, 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$101.29 . High Low Digital Digital Asset Asset Last Market Market End of business Period Average Price Date Price Date period dayMarch 1, 2018 (the first Creation Basket of the Trust) to March 31, 2018$ 168.55 $ 213.49 3/1/2018$ 115.93 3/30/2018$ 119.60 $ 118.18 Twelve months ended March 31, 2019$ 69.48 $ 179.36 5/5/2018$ 22.47 12/14/2018$ 60.28 $ 60.94 Twelve months ended March 31, 2020$ 72.29 $ 141.89 6/22/2019$ 32.27 3/16/2020$ 39.05 $ 39.05 Twelve months ended March 31, 2021$ 85.26 $ 239.47 2/19/2021$ 37.60 4/1/2020$ 193.22 $ 193.22 Twelve months ended March 31, 2022$ 172.48 $ 371.96 5/11/2021$ 97.23 3/7/2022$ 124.25 $ 124.25 March 1, 2018 (the first Creation Basket of the Trust) to March 31, 2022$ 101.29 $ 371.96 5/11/2021$ 22.47 12/14/2018$ 124.25 $ 124.25
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.Digital Asset Holdings per Share ($) [[Image Removed: img85740089_1.jpg]] 19
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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.Digital Asset Holdings per Share (%) [[Image Removed: img85740089_2.jpg]] 20
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