What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 56 added, 41 removed, 93 unchanged (51% of the section changed)

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 U.S.

The following discussion may contain forward-looking statements based on assumptions we believe to be reasonable.

6 unchanged sentences

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

As a passive investment vehicle, the investment objective of the Trust is for the Shares (based on ETH per Share) to reflect the value of the ETH held by the Trust, determined by reference to the Index Price, less the Trust’s expenses and other liabilities.

As a passive investment vehicle, the Trust’s investment objective is for the value of the Shares (based on ETH per Share) to reflect the value of ETH held by the Trust, determined by reference to the Index Price, 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 ETH held by the Trust, less the Trust’s expenses and other liabilities, but instead have traded at both premiums and discounts to such value, with variations that have at times been substantial.

32 unchanged sentences

The Trust uses fair value as its method of accounting for ETH in accordance with its classification as an investment company for accounting purposes.

The Trust is not registered 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 Three Months Ended March 31, 2021 and 2020

Financial Highlights for the Three and Six Months Ended June 30, 2021 and 2020

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

Three Months Ended March 31,

Net realized and unrealized gain (loss) on investment in Ethereum

Net increase (decrease) in net assets resulting from operations

Net realized and unrealized gain on investment in ETH for the three months ended March 31, 2021 was $3,436,598 which includes a realized gain of $22,223 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $3,414,375.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $744.99 per ETH as of December 31, 2020 to $1,899.98 per ETH as of March 31, 2021.

Net increase in net assets resulting from operations was $3,407,328 for the three months ended March 31, 2021, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $29,270.

Net assets increased to $6,030,070 at March 31, 2021, a 176% increase for the period.

Three Months Ended June 30,

Six Months Ended June 30,

Net realized and unrealized gain on investment in Ethereum

Net increase in net assets resulting from operations

Net realized and unrealized gain on investment in ETH for the three months ended June 30, 2021 was $1,098,607 which includes a realized gain of $42,803 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $1,055,804.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $1,899.98 per ETH as of March 31, 2021 to $2,243.98 per ETH as of June 30, 2021.

Net increase in net assets resulting from operations was $1,047,518 for the three months ended June 30, 2021, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $51,089.

Net assets increased to $7,077,588 at June 30, 2021, a 17% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation, partially offset by the withdrawal of approximately 19,721 ETH to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in ETH for the three months ended June 30, 2020 was $107,320 which includes a realized loss of ($70) on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $107,390.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $133.58 per ETH as of March 31, 2020 to $224.96 per ETH as of June 30, 2020.

Net increase in net assets resulting from operations was $105,567 for the three months ended June 30, 2020, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $1,753.

Net assets increased to $382,840 at June 30, 2020, a 169% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 646,168 ETH with a value of $135,132 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 8,445 ETH to pay the foregoing Sponsor’s Fee.

Net realized and unrealized loss on investment in ETH for the three months ended March 31, 2020 was ($28,852) which includes a realized loss of ($273) on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized depreciation on investment in ETH of ($28,579).

Net realized and unrealized loss on investment in ETH for the period was driven by pricing trends in ETH during the period in which the contribution of ETH to the Trust in connection with Share creations occurred when the price per ETH was higher during the three months ended March 31, 2020 than the price of ETH at March 31, 2020.

Net decrease in net assets resulting from operations was ($29,630) for the three months ended March 31, 2020, which consisted of the net realized and unrealized loss on investment in ETH, plus the Sponsor’s Fee of $778.

Net assets increased to $142,141 at March 31, 2020, a 124% increase for the period.

The increase in net assets resulted from ETH price appreciation from $127.86 per ETH as of December 31, 2019 to $133.58 per ETH as of March 31, 2020 and the and the contribution of approximately 571,421 ETH with a value of $108,231 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 4,282 to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in ETH for the six months ended June 30, 2021 was $4,535,205 which includes a realized gain of $65,026 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $4,470,179.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $744.99 per ETH as of December 31, 2020 to $2,243.98 per ETH as of June 30, 2021.

Net increase in net assets resulting from operations was $4,454,846 for the six months ended June 30, 2021, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $80,359.

Net assets increased to $7,077,588 at June 30, 2021, a 223% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 255,556 ETH with a value of

$434,615 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 38,645 ETH to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in ETH for the six months ended June 30, 2020 was $78,468 which includes a realized loss of ($343) on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $78,811.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $127.86 per ETH as of December 31, 2019 to $224.96 per ETH as of June 30, 2020.

Net increase in net assets resulting from operations was $75,937 for the six months ended June 30, 2020, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $2,531.

Net assets increased to $382,840 at June 30, 2020, a 503% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 1,217,590 ETH with a value of $243,363 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 12,728 ETH to pay the foregoing Sponsor’s Fee.

Off-Balance Sheet Arrangements

2 unchanged sentences

The Trust has not had a cash balance at any time since inception.

When selling ETH, Incidental Rights and/or IR Virtual Currency to pay Additional Trust Expenses, the Sponsor endeavors to sell the exact number of ETH, Incidental Rights and/or IR Virtual Currency needed to pay expenses in order to minimize the Trust’s holdings of assets other than ETH.

When selling ETH, 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 ETH, Incidental Rights and/or IR Virtual Currency needed to pay expenses in order to minimize the Trust’s holdings of assets other than ETH.

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.

3 unchanged sentences

Selected Operating Data

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Opening balance

6 unchanged sentences

Closing balance

As of March 31,

As of June 30,

Price of ETH on principal market (2)

2 unchanged sentences

Share and per Share amounts for periods presented prior to the Share Split have been retroactively adjusted for the 9-for-1 Share Split of the Trust’s issued and outstanding Shares completed on December 17, 2020.

The Trust performed an assessment of the principal market at March 31, 2021 and 2020, and identified the principal market as Coinbase Pro.

As of March 31, 2021 and 2020 the NAV per Share was calculated using the fair value of ETH based on the price provided by Coinbase Pro, the Digital Asset Exchange that the Trust currently considers its principal market, as of 4:00 p.m., New York time, on the valuation date.

The Trust performed an assessment of the principal market at June 30, 2021 and 2020, and identified the principal market as Coinbase Pro.

As of June 30, 2021 and 2020 the NAV per Share was calculated using the fair value of ETH based on the price provided by Coinbase Pro, the Digital Asset Exchange that the Trust currently considers its principal market, as of 4:00 p.m., New York time, on the valuation date.

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 Trust’s Digital Asset Holdings per Share is calculated using a non-GAAP methodology where the volume-weighted average price is derived from multiple Digital Asset Exchanges.

See “Key Operating Metrics” in the Trust’s Annual Report on Form 10-K for a description of the Trust’s Digital Asset Holdings per Share.

The Digital Asset Exchanges used to calculate the Index Price as of March 31, 2021 and 2020, were Coinbase Pro, Bitstamp, Kraken and LMAX Digital.

See “ Item 1.

Business —Trust Objective and Key Operating Metrics” in the Trust’s Annual Report on Form 10-K for a description of the Trust’s Digital Asset Holdings per Share.

The Digital Asset Exchanges used to calculate the Index Price as of June 30, 2021 and 2020 were Coinbase Pro , Bitstamp, Kraken and LMAX Digital .

For accounting purposes, the Trust reflects creations and the ETH 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 ETH is received.

2 unchanged sentences

The Trust currently has no intention of seeking regulatory approval to operate an ongoing redemption program.

As of March 31, 2021, the Trust had a net closing balance with a value of $5,852,942,374, based on the Index Price (non-GAAP methodology).

As of March 31, 2021, the Trust had a total market value of $6,030,069,599, based on the principal market (Coinbase Pro).

As of March 31, 2020 , the Trust had a net closing balance with a total value of $141,492,283 , based on the Index Price (non-GAAP methodology).

As of March 31, 2020 , the Trust had a total market value of $142,141,379 , based on the principal market (Coinbase Pro).

As of June 30, 2021, the Trust had a net closing balance with a value of $6,800,285,420, based on the Index Price (non-GAAP methodology).

As of June 30, 2021, the Trust had a total market value of $7,077,588,043, based on the principal market (Coinbase Pro).

As of June 30, 2020, the Trust had a net closing balance with a total value of $385,563,243, based on the Index Price (non-GAAP methodology).

As of June 30, 2020, the Trust had a total market value of $382,840,339, based on the principal market (Coinbase Pro).

Historical Digital Asset Holdings and ETH Prices

2 unchanged sentences

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 Digital Asset Holdings per Share (as adjusted for the Share Split for periods prior to December 17, 2020) versus the Index Price and the Trust’s NAV per Share (as adjusted for the Share Split for periods prior to December 17, 2020) from December 14, 2017 to March 31, 2021.

The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on December 14, 2017 to March 31, 2021.

Since the beginning of the Trust’s operations, the Index Price has ranged from $84.31 to $1,992.26, with the straight average being $417.29 through March 31, 2021.

The following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on December 14, 2017 to June 30, 2021.

Since the beginning of the Trust’s operations, the Index Price has ranged from $84.31 to $4,190.44, with the

straight average being $569.31 through June 30, 2021 .

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.

1 unchanged sentence

Last business day

December 14, 2017 (the first Creation Basket of the Trust) to March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

December 14, 2017 (the first Creation Basket of the Trust) to March 31, 2021

The following table illustrates the movements in the price of ETH, as reported on the Trust’s principal market, from the beginning of the Trust’s operations on December 14, 2017 to March 31, 2021.

December 14, 2017 (the first Creation Basket of the Trust) to June 30, 2018

Twelve months ended June 30, 2019

Twelve months ended June 30, 2020

Twelve months ended June 30, 2021

December 14, 2017 (the first Creation Basket of the Trust) to June 30, 2021

The following table illustrates the movements in the price of ETH, as reported on the Trust’s principal market, from the beginning of the Trust’s operations on December 14, 2017 to June 30, 2021.

Since the beginning of the Trust’s operations, the price of ETH has ranged from $82.34 to $4,089.92, with the straight average being $572.11.

1 unchanged sentence

Last business day

December 14, 2017 (the first Creation Basket of the Trust) to March 31, 2018

Twelve months ended March 31, 2019

Twelve months ended March 31, 2020

Twelve months ended March 31, 2021

December 14, 2017 (the first Creation Basket of the Trust) to March 31, 2021

December 14, 2017 (the first Creation Basket of the Trust) to June 30, 2018

Twelve months ended June 30, 2019

Twelve months ended June 30, 2020

Twelve months ended June 30, 2021

December 14, 2017 (the first Creation Basket of the Trust) to June 30, 2021

The following chart sets out the historical closing prices for the Shares as reported by OTCQX and the Trust’s Digital Asset Holdings per Share.

7 unchanged sentences

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