SkyBridge Digital Innovation Portfolio, Series 1
Money is, at its essence, a technology that enables people to overcome the limitations of barter. Like all technologies, money has evolved: from shells to stones to metals to paper. The financial crisis
of 2008 fostered the birth of Bitcoin which has become the dominant digital asset, or cryptocurrency. Bitcoin is a monetary instrument that does not require trust in governments to not inflate away
the value of money or trust in banks to stay solvent. As a consequence, Bitcoin is increasingly owned by institutional investors including insurance companies, endowments, hedge funds, investment
managers, and public companies.
Bitcoin is a digital asset based on a decentralized open-source protocol of a peer-to-peer network launched in 2009. The Bitcoin network, which now consists of approximately 83,000 computers and
servers throughout the world, governs the creation, movement, and ownership of Bitcoin and hosts the public ledger, or “blockchain.”1 The decentralized nature of the Bitcoin network allows parties to
transact directly with one another based on cryptographic proof instead of relying on a trusted, or perhaps untrustworthy, third party.
The SkyBridge Digital Innovation Portfolio will invest in common stocks of companies that are involved in digital innovation and those that are closely correlated with digital assets (including Bitcoin)
and blockchain. This can include miners, custodians, and companies that have a large percentage of their firm assets invested in cryptocurrencies and related activity. The portfolio will not directly invest
in Bitcoin or other cryptocurrencies.
Role of Bitcoin And Digital Assets
The defining feature of Bitcoin is the hard cap of 21 million on the number of outstanding Bitcoin.
Presently 18.6 million Bitcoin have been mined, and it is estimated that the last Bitcoin will be
mined, or issued, in 2140.2 Bitcoin’s predetermined issuance schedule and fixed cap of 21 million
stands in sharp contrast to government-issued currencies which are devalued by excessive
monetary printing. Over the last year, a number of countries including Argentina, Turkey, and
Lebanon have suffered currency crises. In the U.S., the Federal Reserve has increased the supply
of U.S. dollars, as measured by M2, by over 30% since March 2020. As a consequence, we believe
investors have been increasingly attracted to fixed supply assets like real estate, art and gold
which has contributed to the growing adoption of Bitcoin.
Furthermore, the world has grown increasingly connected via digital networks. Over the last
decade, Bitcoin has emerged as the dominant digital monetary network, and Bitcoin, to quote
Andreas Antonopoulos (author of Mastering Bitcoin), has become “the Internet of money.”2 As
work, exercise, and retail become increasingly digitized, the utility and adoption of digital money
likewise is expected to increase.
Digital Asset Ecosystem
As Bitcoin has grown to a $1 trillion asset class an ecosystem of new and existing companies has
sought to participate in the growing digital asset market which, in addition to Bitcoin, includes
Central Bank Digital Currencies (CBDCs) and other cryptocurrencies like Ethereum.2 These
companies provide services, including payment processing, mining, investment management,
trading, custody, banking, and products including software and hardware. Moreover, a number of
these companies hold digital assets, particularly Bitcoin, on their balance sheets.
This unit investment trust seeks above-average capital appreciation; however, there is no
assurance the objective will be met.
SkyBridge is a global investment manager that invests in hedge funds, digital assets, private
equity, and real estate. As of December 31, 2020, SkyBridge had $7.4 billion under management
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, risks, and
charges and expenses carefully before investing. Contact your financial professional
or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus,
which contains this and other information about the portfolio. Read it carefully
before you invest.
An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with owning common stocks, such as an economic recession and the
possible deterioration of either the financial condition of the issuers of the equity securities or the general condition of the stock market.
You should be aware that the portfolio is concentrated in stocks in both the financials and information technology sectors which involves additional risks, including limited diversification. The companies engaged in the
financials sector are subject to the adverse effects of volatile interest rates, economic recession, decreases in the availability of capital, increased competition from new entrants in the field, and potential increased regulation.
The companies engaged in the information technology sector are subject to fierce competition, high research and development costs, and their products and services may be subject to rapid obsolescence. Technology company
stocks, especially those which are Internet-related, may experience extreme price and volume fluctuations that are often unrelated to their operating performance.
Under normal circumstances, the portfolio will invest at least 80% of its assets in digital asset companies. Digital asset companies are those which derive at least 50% of their revenues from, or dedicate at least 50% of their
assets to: investing in digital assets; facilitating the processing of digital assets or online payment transactions; or generally supporting the digital asset ecosystem (e.g. digital asset miners, digital asset software developers
and hardware manufacturers, payment technologies, digital asset custody and security, digital asset trading, or digital asset exchanges). For purposes of the portfolio, “digital assets” include virtual currencies, cryptocurrencies
and other assets that are issued and/or transferred using technological innovations such as distributed ledger or blockchain technology, as well as traditional currencies that are processed or transferred using technological
innovations (e.g., online payment processing).
An investment in digital asset companies is subject to risks associated with investing in digital assets, including cryptocurrencies and crypto tokens. Such companies may be subject to the risk that: the technology that facilitates
the transfer of a cryptocurrency could fail; the decentralized, open source protocol of the applicable blockchain network could be affected by Internet connectivity disruptions, fraud, consensus failures or cybersecurity attacks;
such network may not be adequately maintained by its participants; because crypto assets are a new technological innovation with a limited history, they are highly speculative asset; future regulatory actions or policies
may limit the ability to sell, exchange or use a crypto asset; the price of a crypto asset may be impacted by the transactions of a small number of holders of such crypto asset; and that a crypto asset will decline in popularity,
acceptance or use, thereby impairing its price.
An investment in a portfolio containing equity securities of foreign issuers is subject to additional risks, including currency fluctuations, political risks, withholding, the lack of adequate financial information, and exchange
control restrictions impacting foreign issuers. Risks associated with investing in foreign securities may be more pronounced in emerging markets where the securities markets are substantially smaller, less developed, less
liquid, less regulated, and more volatile than the U.S. and developed foreign markets.
An investment in a portfolio containing small-cap and mid-cap companies is subject to additional risks, as the share prices of small-cap companies and certain mid-cap companies are often more volatile than those of larger
companies due to several factors, including limited trading volumes, products, financial resources, management inexperience and less publicly available information.
Large capitalization companies may grow at a slower rate than the overall market.
The value of the securities held by the trust may be subject to steep declines or increased volatility due to changes in performance or perception of the issuers.
As the use of Internet technology has become more prevalent in the course of business, the trust has become more susceptible to potential operational risks through breaches in cybersecurity.
The COVID-19 global pandemic has resulted in major disruptions to economies and markets around the world. Financial markets have experienced extreme volatility and severe losses, negatively impacting global economic
growth prospects. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty and may exacerbate other political, social and economic risks.
Although this portfolio terminates in approximately 15 months, the strategy is long-term. Investors should consider their ability to pursue investing in successive portfolios, if available. There may be tax consequences unless
units are purchased in an IRA or other qualified plan.