What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-30 · 89 added, 16 removed, 61 unchanged (63% of the section changed)

7 unchanged sentences

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 Ether and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of Ether (or cash to acquire Ether) and redeem Baskets in exchange for Ether (or proceeds from the disposition of Ether) from the Trust.

On July 22, 2024, the Sponsor authorized the commencement of a redemption program.

Shares of the Trust began trading on NYSE Arca on July 23, 2024.

The Trust holds Ether and, from time to time on a periodic basis, issues Creation Baskets in exchange for deposits of Ether.

On July 22, 2024, in connection with the approval of application under Rule 19b-4 of the Securities Exchange Act of 1934 on July 18, 2024 and the effectiveness of the registration statement on Form S-1, as amended (File No.

333-278878), the Sponsor authorized the commencement of a redemption program.

Shares of the Trust began trading on NYSE Arca on July 23, 2024, following the effectiveness of the Registration Statement.

The Trust issues Shares only in one or more blocks of 10,000 Shares (a block of 10,000 Shares is called a “Basket”) to certain Authorized Participants from time to time.

5 unchanged sentences

The Trust is not managed like a business corporation or an active investment vehicle.

Recent Developments

The Initial Distribution

On July 23, 2024, the Grayscale Ethereum Trust (ETH) (“ETHE”) completed its previously announced pro rata distribution of 310,158,500 Shares of the Trust to shareholders of ETHE as of July 18, 2024 (the “Record Date”), as described in ETHE’s definitive information statement on Schedule 14C, filed with the SEC on July 18, 2024 (referred to as the “Initial Distribution”).

In connection therewith, on July 23, 2024, ETHE contributed to the Trust an amount of Ether equal to 10% of the total Ether held by ETHE as of the Record Date, equal to approximately 292,262.98913350 Ether, as consideration and in exchange for the issuance of Shares of the Trust.

In connection therewith, on July 23, 2024, ETHE contributed to the Trust an amount of Ether equal to 10% of the total Ether held by ETHE as of the Record Date, equal to 292,262.98913350 Ether, as consideration and in exchange for the issuance of Shares of the Trust.

Subject to the limitations and qualifications set forth in ETHE’s definitive information statement on Schedule 14C, filed with the SEC on July 18, 2024 (including with respect to the qualification of both ETHE and the Trust as grantor trusts for U.S.

2 unchanged sentences

Accordingly, it is expected that neither ETHE’s contribution of Ether to the Trust nor ETHE’s distribution of Shares in the Trust to shareholders as of 4:00 PM ET on the Record Date will be reported to any beneficial owner of ETHE shares (or to any intermediary holding ETHE shares) as giving rise to income, gain, loss, deduction, credit or proceeds.

Any beneficial owner of ETHE shares who receives Shares of the Trust in the Initial Distribution, and any intermediary holding ETHE shares or Shares of the Trust, should consult their own tax advisor regarding the U.S.

Any beneficial owner of ETHE shares who received Shares of the Trust in the Initial Distribution, and any intermediary holding ETHE shares or Shares of the Trust, should consult their own tax advisor regarding the U.S.

federal income tax consequences of the Initial Distribution, including the proper allocation of existing tax basis between ETHE shares and Shares of the Trust.

1 unchanged sentence

federal income tax considerations relating to the Initial Distribution and ownership of Shares of the Trust.

Listing on NYSE Arca

On July 18, 2024, the SEC approved an application under Rule 19b-4 of the Securities Exchange Act of 1934, as amended, by NYSE Arca to list the Shares of the Trust.

Shares of the Trust began trading on NYSE Arca on July 23, 2024, under the ticker symbol “ETH.”

Critical Accounting Policies and Estimates

6 unchanged sentences

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 net asset value in accordance with U.S.

GAAP (“Principal Market NAV”), the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, which outlines the application of fair value accounting.

GAAP (“Principal Market NAV”), the Trust follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurement , which outlines the application of fair value accounting.

ASC 820-10 determines fair value to be the price that would be received for Ether in a current sale, which assumes an orderly transaction between market participants on the measurement date.

16 unchanged sentences

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 is an investment company for U.S.

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 Ether 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.

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.

1 unchanged sentence

Review of Financial Results (unaudited)

Financial Highlights for the Period from May 31, 2024 (Date of Seeding) to June 30, 2024.

At June 30, 2024, the Trust had no operations other than a sale to the Sponsor of 10,000 shares of common stock for $100,000 ($10.00 per share).

Financial Highlights for the Period from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024.

(All amounts in the following table and the subsequent paragraphs, except Share, per Share, Ether and price of Ether amounts, are in thousands)

July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024

Net realized and unrealized loss on investment in Ether

Net decrease in net assets resulting from operations

Net assets (1)

(1) Net assets in the above table and subsequent paragraphs are calculated in accordance with U.S.

GAAP based on the Digital Asset Market price of Ether on the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date.

Net realized and unrealized loss on investment in Ether for the period from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024 was ($289,749), which includes a realized loss of ($3,536) on the sale of Ether to meet redemptions and net change in unrealized depreciation on investment in Ether of ($286,213).

Net realized and unrealized loss on investment in Ether for the period was driven by Ether price depreciation from $3,458.99 per Ether as of July 23, 2024 (the commencement of the Trust’s operations), to $2,594.43 per Ether as of September 30, 2024.

Net decrease in net assets resulting from operations was ($289,749) for the period from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024, which consisted of the net realized and unrealized loss on investment in Ether.

Net assets increased to $1,015,027 at September 30, 2024.

The increase in net assets resulted from the contribution of approximately 105,001 Ether with a value of $310,876 to the Trust in connection with Share creations during the period and the contribution of approximately 292,263 Ether with a value of $1,010,935 to the Trust in connection with the Initial Distribution from Grayscale Ethereum Trust (ETH), partially offset by the aforementioned Ether price depreciation and the redemption of approximately 6,031 Ether, with a value of $17,035 from the Trust.

Cash Resources and Liquidity

The Trust only receives and holds cash in order to facilitate creations and redemptions pursuant to Cash Orders, and does not otherwise have or maintain a cash balance at any time since the completion of the Initial Distribution.

When selling Ether in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor will endeavor to sell the exact amount of Ether needed to pay expenses in order to minimize the Trust’s holdings of assets other than Ether.

The Trust only receives and holds cash in order to facilitate creations and redemptions pursuant to Cash Orders, and has not otherwise had or maintained a cash balance at any time since the completion of the Initial Distribution.

When selling Ether in the Digital Asset Market to pay Additional Trust Expenses on behalf of the Trust, the Sponsor endeavors to sell the exact amount of Ether needed to pay expenses in order to minimize the Trust’s holdings of assets other than Ether.

In addition, upon the consummation or deemed failure of a Cash Order to create or redeem Baskets, the Trust will promptly return any excess cash it continues to hold with respect to such Cash Order to the applicable counterparty.

3 unchanged sentences

As a result, the only ordinary expense of the Trust expected to be incurred is the Sponsor’s Fee and, if applicable, any Additional Trust Expenses.

The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee of the Trust in its discretion for stated periods of time.

Effective July 23, 2024, the Sponsor has determined to waive a portion of the Sponsor’s Fee for the first six months, so that the fee will be 0% of the NAV of the Trust for the first $2.0 billion of the Trust’s assets.

If the Trust’s assets exceed $2.0 billion prior to the end of the six-month period, the Sponsor’s Fee charged on assets over $2.0 billion will be 0.15%.

All investors will incur the same Sponsor’s Fee, which is the weighted average of those fee rates.

After the six-month waiver period is over, the Sponsor’s Fee will be 0.15%.

As of the date of this Quarterly Report, the Trust’s assets did not exceed $2.0 billion and no Sponsor’s Fee has been incurred.

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

July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024

(All Ether balances are rounded to the nearest whole Ether)

Opening balance

Creation from Initial Distribution (1)

Sponsor’s Fee, related party

Closing balance

Accrued but unpaid Sponsor’s Fee, related party

Net closing balance

Number of Shares:

Opening balance

Creation from Initial Distribution (1)

Closing balance

As of September 30, 2024

Price of Ether on principal market (2)

Principal Market NAV per Share (3)

Index Price (4)

NAV per Share (4)

(1) Represents the impact of the Initial Distribution of 292,262.98913350 Ether, with a value of approximately $1,010.9 million from Grayscale Ethereum Trust (ETH), completed on July 23, 2024, as discussed in Note 4 of the notes to the unaudited financial statements.

(2) The Trust performed an assessment of the principal market at September 30, 2024, and identified the principal market as Coinbase.

(3) As of September 30, 2024, the Principal Market NAV per Share was calculated using the fair value of Ether based on the price provided by Coinbase, the Digital Asset Trading Platform that the Trust considered its principal market, as of 4:00 p.m., New York time, on the valuation date.

(4) The Trust’s NAV 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 Trust’s NAV per Share is calculated using a non-GAAP methodology where the price is derived from multiple Digital Asset Trading Platforms.

See “Business—Overview of the Ethereum Industry and Market—The Index and the Index Price” in the Registration Statement for a description of the Index and the Index Price.

The Digital Asset Trading Platforms included in the Index as of September 30, 2024 were Coinbase, Kraken, LMAX Digital, and Crypto.com.

See “Business—Valuation of Ether and Determination of NAV” in the Registration Statement for a description of the Trust’s NAV per Share.

The Trust reflects creations and redemptions and the Ether for proceeds receivable or payable with respect to such creations and redemptions, respectively, on the business day following the receipt of a notification of a creation or redemption order by an Authorized Participant.

Creation and redemption orders are settled on T+1 or T+2, as established at the time of order placement, and therefore the Ether for proceeds receivable or payable with respect to such creations and redemptions, respectively, are recorded as a receivable or payable until the Ether are delivered or removed from the Trust for settlement.

As of September 30, 2024, the Trust had a net closing balance of 391,232.97302030 Ether with a value of $1,014,361,466, based on the Index Price of $2,592.73 on September 30, 2024 (non-GAAP methodology).

As of September 30, 2024, the total market value of the Trust’s Ether was $1,015,026,562, based on the price of one Ether in the principal market (Coinbase) of $2,594.43 on September 30, 2024.

Historical NAV and Ether Prices

As movements in the price of Ether will directly affect the price of the Shares, investors should understand recent movements in the price of Ether.

Investors, however, should also be aware that past movements in the Ether 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 Trust’s NAV per Share versus the Index Price and the Trust’s Principal Market NAV per Share from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024.

For more information on the determination of the Trust’s NAV, see “Business—Valuation of Ether and Determination of NAV” in the Registration Statement.

The following table illustrates the movements in the Index Price from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024.

During such period, the Index Price has ranged from $2,221.82 to $3,456.85, with the straight average being $2,650.95 through September 30, 2024.

The Sponsor has not observed a material difference between the Index Price and average prices from the constituent Digital Asset Trading Platforms individually or as a group.

End of period

Last business day

July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024

The following table illustrates the movements in the Digital Asset Market price of Ether, as reported on the Trust’s principal market, from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024.

During such period, the price of Ether has ranged from $2,220.15 to $3,458.99, with the straight average being $2,650.90 through September 30, 2024.

Digital Asset Market Price

End of period

Last business day

July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024

The following chart sets out the historical closing prices for the Shares as reported by NYSE Arca from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024 and the Trust’s NAV per Share from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024.

ETH Premium/(Discount):

ETH Share Price vs.

NAV per Share (Non-GAAP) ($)

The following chart sets out the historical premium and discount for the Shares calculated as a percentage of the historical closing prices for the Shares as reported by NYSE Arca from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024 divided by the Trust’s NAV per Share from July 23, 2024 (the commencement of the Trust’s operations) to September 30, 2024.

ETH Premium/(Discount):

ETH Share Price vs.

NAV per Share (Non-GAAP) (%)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis