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May 6, 2022, 8:35 a.m. EDT

10-Q: GRAYSCALE DIGITAL LARGE CAP FUND LLC

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with, and is qualified in its entirety by reference to, our unaudited financial statements and related notes included elsewhere in this Quarterly Report, which have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those set forth under Part II, Item 1A. Risk Factors in this Quarterly Report or in Part I, Item 1A. Risk Factors or other sections of our Annual Report on Form 10-K for the year ended June 30, 2021 or other sections of the Information Statement.

Fund Overview

The Fund is a passive entity that is managed and administered by the Manager and does not have any officers, directors or employees. The Fund holds Fund Components and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of Fund Components. As a passive investment vehicle, the Fund's investment objective is for the value of the Shares to reflect the value of the Fund Components held by the Fund, determined by reference to the Digital Asset Reference Rates and weightings within the Fund, less the Fund's expenses and other liabilities. To date, the Fund has not met its investment objective and the Shares quoted on OTCQX have not reflected the value of Fund Components, less the Fund's expenses and other liabilities, but have instead traded at both premiums and discounts to such value, which at times have been substantial. The Fund is not managed like a business corporation or an active investment vehicle.

The Digital Asset Reference Rate of each Fund Component is the price in U.S. dollars of such Fund Component, as determined by reference to (i) a volume-weighted average price in U.S. dollars as of 4:00 p.m., New York time, for the immediately preceding 24-hour period derived from data collected from Digital Asset Exchanges trading such Fund Component selected by the Reference Rate Provider (an "Indicative Price") or (ii) the index price in U.S. dollars as of 4:00 p.m., New York time, determined by the Reference Rate Provider by further cleansing and compiling the trade data used to determine the Indicative Price in such a manner as to algorithmically reduce the impact of anomalistic or manipulative trading (an "Index Price").

Critical Accounting Policies and Estimates

Investment Transactions and Revenue Recognition

The Fund considers investment transactions to be the receipt of Fund Components for Share creations and the delivery of Fund Components for Share redemptions or for payment of expenses in Fund Components. At this time, the Fund is not accepting redemption requests from shareholders. The Fund 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 Manager's Fee in the Fund Components.

Principal Market and Fair Value Determination

To determine which market is the Fund's principal market for each Fund Component (or in the absence of a principal market, the most advantageous market) for purposes of calculating the Fund's NAV, the Fund follows FASB 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 each Fund Component in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Fund to assume that each Fund Component 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 Fund only receives Fund Components from the Authorized Participant and does not itself transact on any Digital Asset Markets. Therefore, the Fund 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 Manager, provides information about the Digital Asset Markets on which it transacts to the Fund. In determining which of the eligible Digital Asset Markets is the Fund's principal market for each Fund Component, the Fund reviews these criteria in the following order:

The Fund determines its principal market for each Fund Component (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 Fund 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 Fund's determination of its principal market for each Fund Component.

The cost basis of the investment in each Fund Component recorded by the Fund for financial reporting purposes is the fair value of the Fund Component at the time of transfer. The cost basis recorded by the Fund may differ from proceeds collected by the Authorized Participant from the sale of the corresponding Shares to investors.

Investment Company Considerations

The Fund 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 Fund uses fair value as its method of accounting for digital assets in accordance with its classification as an investment company for accounting purposes. The Fund is not a registered investment company under the Investment Company Act. 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 March 31, 2022 and 2021
        (All amounts in the following table and the subsequent paragraphs, except Share,
        per Share, each Fund Component and price of each Fund Component 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 investments in
        digital assets                    $      (25,435 )     $      271,408     $      109,863       $      426,027
        Net (decrease) increase in net
        assets resulting from
        operations                        $      (28,057 )     $      268,859     $      100,647       $      422,009
        Net assets                        $      468,890       $      532,171     $      468,890       $      532,171
        


Net realized and unrealized loss on investments in digital assets for the three months ended March 31, 2022 was ($25,435), which includes a realized gain of $1,772 on the transfer of digital assets to pay the Manager's Fee and net change in unrealized depreciation on investments in digital assets of ($27,207). Net decrease in net assets resulting from operations was ($28,057) for the three months ended March 31, 2022, which consisted of the net realized and unrealized loss on investments in digital assets, plus the Manager's Fee of $2,622. Net assets decreased to $468,890 at March 31, 2022, a 6% decrease for the three-month period. The decrease in net assets resulted primarily from the price depreciation on the Fund Components during the period and the withdrawal of approximately 40 BTC, 250 ETH, 647 SOL, 70,845 ADA, 1,303 UNI, 147 LTC, 986 LINK and 42 BCH to pay the foregoing Manager's Fee.

Net realized and unrealized gain on investments in digital assets for the three months ended March 31, 2021 was $271,408, which includes a realized gain of $152 on the transfer of digital assets to pay the Manager's Fee and net change in unrealized appreciation on investments in digital assets of $271,256. Net increase in net assets resulting from operations was $268,859 for the three months ended March 31, 2021, which consisted of the net realized and unrealized gain on investments in digital assets, less the Manager's Fee of $2,549. Net assets increased to $532,171 at March 31, 2021, a 111% increase for the three-month period. The increase in net assets resulted from the contribution of approximately 199 BTC, 1,199 ETH, 199 BCH, and 701 LTC with a total value of $10,655 to the Fund

in connection with Share creations during the period, partially offset by the withdrawal of approximately 46 BTC, 275 ETH, 3,460 XRP, 46 BCH and 162 LTC to pay the foregoing Manager's Fee.

Net realized and unrealized gain on investments in digital assets for the nine months ended March 31, 2022 was $109,863, which includes a realized gain of $33,342 on the transfer of digital assets to pay the Manager's Fee and quarterly rebalances of Fund Components and net change in unrealized appreciation on investments in digital assets of $76,521. Net increase in net assets resulting from operations was $100,647 for the nine months ended March 31, 2022, which consisted of the net realized and unrealized gain on investments in digital assets, less the Manager's Fee of $9,216. Net assets increased to $468,890 at March 31, 2022, a 28% increase for the nine-month period. The increase in net assets resulted from the contribution of approximately 13 BTC, 77 ETH, 13 BCH, 47 LTC, 310 LINK and 20,953 ADA with a total value of $935 to the Fund in connection with Share creations during the period, partially offset by the withdrawal of approximately 126 BTC, 769 ETH, 1,313 SOL, 214,475 ADA, 2,643 UNI, 458 LTC, 3,048 LINK and 132 BCH to pay the foregoing Manager's Fee.

Net realized and unrealized gain on investments in digital assets for the nine months ended March 31, 2021 was $426,027, which includes a realized gain of $625 on the transfer of digital assets to pay the Manager's Fee and net change in unrealized appreciation on investments in digital assets of $425,402. Net increase in net assets resulting from operations was $422,009 for the nine months ended March 31, 2021, which consisted of the net realized and unrealized gain on investments in digital assets, less the Manager's Fee of $4,018. Net assets increased to $532,171 at March 31, 2021, a 1,544% increase for the nine-month period. The increase in net assets resulted from the contribution of approximately 4,657 BTC, 26,973 ETH, 10,327,654 XRP, 4,685 BCH, and 15,267 LTC, with a total value of $77,788 to the Fund in connection with Share creations during the period, partially offset by the withdrawal of approximately 125 BTC, 732 ETH, 126 BCH, 186,462 XRP and 419 LTC to pay the foregoing Manager's Fee.

Cash Resources and Liquidity

The Fund has not had a cash balance at any time since inception. When selling Fund Components and/or Forked Assets to pay Additional Fund Expenses, the Manager endeavors to sell the exact number of Fund Components and/or Forked Assets needed to pay expenses in order to minimize the Fund's holdings of assets other than the Fund Components. As a consequence, the Manager expects that the Fund 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 Fund is not a party to any off-balance sheet arrangements.

In exchange for the Manager's Fee, the Manager has agreed to assume most of the expenses incurred by the Fund. As a result, the only ordinary expense of the Fund during the periods covered by this Quarterly Report was the Manager's Fee. The Fund 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 March 31,
                                                2022                2021              2022                2021
        BTC:
        Opening balance                             6,610               7,270             7,340               2,891
        Creations                                       -                 199                13               4,657
        Portfolio rebalancing1, 2, 3                    -                  42              (657 )                42
        Manager's Fee, related party                  (40 )               (46 )            (126 )              (125 )
        Closing balance                             6,570               7,465             6,570               7,465
        Accrued but unpaid Manager's Fee,
        related party                                   -                   -                 -                   -
        Net closing balance                         6,570               7,465             6,570               7,465
        








        ETH:
        Opening balance                          40,655          42,030          45,288          16,713
        Creations                                     -           1,199              77          26,973
        Portfolio rebalancing1, 2, 3                  -           2,161          (4,191 )         2,161
        Manager's Fee, related party               (250 )          (275 )          (769 )          (732 )
        Closing balance                          40,405          45,115          40,405          45,115
        Accrued but unpaid Manager's Fee,
        related party                                 -               -               -               -
        Net closing balance                      40,405          45,115          40,405          45,115
        








        SOL:
        Opening balance                                     105,349       -             -       -
        Creations                                                 -       -             -       -
        Portfolio rebalancing1                                    -       -       106,015       -
        Manager's Fee, related party                           (647 )     -        (1,313 )     -
        Closing balance                                     104,702       -       104,702       -
        Accrued but unpaid Manager's Fee, related party           -       -             -       -
        Net closing balance                                 104,702       -       104,702       -
        








        ADA:
        Opening balance                       11,527,622               -                -               -
        Creations                                      -               -           20,953               -
        Portfolio rebalancing1, 2                      -               -       11,650,299               -
        Manager's Fee, related party             (70,845 )             -         (214,475 )             -
        Closing balance                       11,456,777               -       11,456,777               -
        Accrued but unpaid Manager's Fee,
        related party                                  -               -                -               -
        Net closing balance                   11,456,777               -       11,456,777               -
        








        UNI:
        Opening balance                                     211,992       -             -       -
        Creations                                                 -       -             -       -
        Portfolio rebalancing1                                    -       -       213,332       -
        Manager's Fee, related party                         (1,303 )     -        (2,643 )     -
        Closing balance                                     210,689       -       210,689       -
        Accrued but unpaid Manager's Fee, related party           -       -             -       -
        Net closing balance                                 210,689       -       210,689       -
        








        LTC:
        Opening balance                          23,866          23,756          26,185           9,447
        Creations                                     -             701              47          15,267
        Portfolio rebalancing1, 2, 3                  -           2,005          (2,055 )         2,005
        Manager's Fee, related party               (147 )          (162 )          (458 )          (419 )
        Closing balance                          23,719          26,300          23,719          26,300
        Accrued but unpaid Manager's Fee,
        related party                                 -               -               -               -
        Net closing balance                      23,719          26,300          23,719          26,300
        








        LINK:
        Opening balance                                     160,367       -       153,328       -
        Creations                                                 -       -           310       -
        Portfolio rebalancing1,2, 3                               -       -         8,791       -
        Manager's Fee, related party                           (986 )     -        (3,048 )     -
        Closing balance                                     159,381       -       159,381       -
        Accrued but unpaid Manager's Fee, related party           -       -             -       -
        Net closing balance                                 159,381       -       159,381       -
        








        BCH:
        Opening balance                                     6,922       7,316       7,380       2,910
        Creations                                               -         199          13       4,685
        Portfolio rebalancing1, 2, 3                            -           3        (381 )         3
        Manager's Fee, related party                          (42 )       (46 )      (132 )      (126 )
        Closing balance                                     6,880       7,472       6,880       7,472
        Accrued but unpaid Manager's Fee, related party         -           -           -           -
        Net closing balance                                 6,880       7,472       6,880       7,472
        








        XRP:
        Opening balance                               -        16,841,658               -         6,697,006
        Creations                                     -                 -               -        10,327,654
        Portfolio rebalancing4                        -       (16,838,198 )             -       (16,838,198 )
        Manager's Fee, related party                  -            (3,460 )             -          (186,462 )
        Closing balance                               -                 -               -                 -
        Accrued but unpaid Manager's Fee,
        related party                                 -                 -               -                 -
        Net closing balance                           -                 -               -                 -
        Number of Shares:
        Opening balance       15,867,400       15,392,800       15,837,800        6,029,000
        Creations                      -          418,900           29,600        9,782,700
        Closing balance       15,867,400       15,811,700       15,867,400       15,811,700
                                                             As of March 31,
                                                          2022            2021
        Prices of digital assets on principal market
        BTC                                            $ 45,595.55     $ 58,601.27
        ETH                                            $  3,284.17     $  1,899.98
        SOL1                                           $    122.97             N/A
        ADA2                                           $      1.15             N/A
        UNI1                                           $     11.23             N/A
        LTC                                            $    124.25     $    193.22
        LINK3                                          $     16.86             N/A
        BCH                                            $    377.34     $    526.01
        NAV per Share                                  $     29.55     $     33.66
        Digital Asset Reference Rates
        BTC                                            $ 45,625.48     $ 58,592.37
        ETH                                            $  3,287.56     $  1,900.34
        SOL1                                           $    123.03             N/A
        ADA2                                           $      1.15             N/A
        UNI1                                           $     11.24             N/A
        LTC                                            $    124.36     $    193.39
        LINK3                                          $     16.87             N/A
        BCH                                            $    377.34     $    527.50
        Digital Asset Holdings per Share               $     29.57     $     33.65
        


(1)

For accounting purposes, the Fund reflects creations and the Fund Components 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 Fund Components is received. At this time, the Fund is not accepting redemption requests from shareholders. Subject to receipt of regulatory approval from the SEC and

approval by the Manager in its sole discretion, the Fund may in the future operate a redemption program. The Fund currently has no intention of seeking regulatory approval to operate an ongoing redemption program.

As of March 31, 2022, the Fund had a net closing balance with a value of $469,236,434, based on the Index Prices (non-GAAP methodology). As of March 31, 2022, the Fund had a total market value of $468,890,239, based on the principal market prices.

As of March 31, 2021, the Fund had a net closing balance with a value of $532,136,575, based on the Index Prices (non-GAAP methodology). As of March 31, 2021, the Fund had a total market value of $532,171,166, based on the principal market prices.

Historical Fund Component Prices

As movements in the price of each Fund Component will directly affect the price of the Shares, investors should understand recent movements in the price of each Fund Component. Investors, however, should also be aware that past movements in each of the Fund Component prices 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 Fund's Digital Asset Holdings per Share based on the Index Price of each Fund Component and the Fund's net asset value per Share as calculated in accordance with GAAP from February 1, 2018 to March 31, 2022.

[[Image Removed: img240468024_0.jpg]]

Bitcoin

The Digital Asset Reference Rate for Bitcoin is an Index Price for Bitcoin. The following table illustrates the movements in the Index Price for Bitcoin from the beginning of the Fund's operations on February 1, 2018 to March 31, 2022. Since the beginning of the Fund's operations, the Index Price has ranged from $3,164.99 to $67,352.59, with the straight average being $19,815.62. The Manager 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
        Period                        Average       Index Price        Date      Index Price         Date       End of period      business day
        February 1, 2018 to March
        31, 2018                    $  9,180.82     $  11,740.56     2/20/2018   $   6,821.15     3/30/2018    $      7,057.32     $   6,821.15
        Twelve months ended March
        . . .
        


May 06, 2022

COMTEX_406788831/2041/2022-05-06T08:34:46

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