What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-06 · 57 added, 57 removed, 92 unchanged (55% of the section changed)

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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 I, Item 1A.

Risk Factors in this Quarterly Report or in Part II, Item 1A.

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 December 31, 2020.

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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.

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

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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 Master Glossary.

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.

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 level of activity of ETH traded on each Digital Asset Market in the trailing twelve months.

Second, the Trust sorts the remaining Digital Asset Markets from high to low by entity-specific and market-based volume and activity of ETH 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-based volume, level of activity and price stability in comparison to the other Digital Asset Markets on the list.

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 Exchange Markets as opposed to the Brokered Market, Dealer Market and Principal-to-Principal Markets to

determine its principal market.

The Trust therefore looks to accessible 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.

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Review of Financial Results (unaudited)

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 June 30,

Six Months Ended June 30,

Financial Highlights for the Three and Nine Months Ended September 30, 2021 and 2020

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

Three Months Ended September 30,

Nine Months Ended September 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.

Net realized and unrealized gain on investment in ETH for the three months ended September 30, 2021 was $2,357,573 which includes a realized gain of $48,058 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $2,309,515.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $2,243.98 per ETH as of June 30, 2021 to $2,992.38 per ETH as of September 30, 2021.

Net increase in net assets resulting from operations was $2,301,191 for the three months ended September 30, 2021, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $56,382.

Net assets increased to $9,378,779 at September 30, 2021, a 33% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation, partially offset by the withdrawal of approximately 19,813 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.

Net realized and unrealized gain on investment in ETH for the three months ended September 30, 2020 was $221,305 which includes a realized gain of $1,389 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $219,916.

Net realized and unrealized gain on investment in ETH for the period was driven by ETH price appreciation from $224.96 per ETH as of June 30, 2020 to $355.34 per ETH as of September 30, 2020.

Net increase in net assets resulting from operations was $216,965 for the three months ended September 30, 2020, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $4,340.

Net assets increased to $803,954 at September 30, 2020, a 110% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 573,201 ETH with a value of $204,149 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 12,524 ETH 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.

Net realized and unrealized gain on investment in ETH for the nine months ended September 30, 2021 was $6,892,778 which includes a realized gain of $113,084 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $6,779,694.

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 $2,992.38 per ETH as of September 30, 2021.

Net increase in net assets resulting from operations was $6,756,037 for the nine months ended September 30, 2021, which consisted of the net realized and

unrealized gain on investment in ETH , less the Sponsor’s Fee of $136,741 .

Net assets increased to $9,378,779 at September 30, 2021 , a 329% increase for the period .

The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 255,555 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 58,457 ETH to pay the foregoing Sponsor’s Fee.

Net realized and unrealized gain on investment in ETH for the nine months ended September 30, 2020 was $299,773 which includes a realized gain of $1,046 on the transfer of ETH to pay the Sponsor’s Fee and net change in unrealized appreciation on investment in ETH of $298,727.

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 $355.34 per ETH as of September 30, 2020.

Net increase in net assets resulting from operations was $292,902 for the nine months ended September 30, 2020, which consisted of the net realized and unrealized gain on investment in ETH, less the Sponsor’s Fee of $6,871.

Net assets increased to $803,954 at September 30, 2020, a 1,165% increase for the period.

The increase in net assets resulted from the aforementioned ETH price appreciation and the contribution of approximately 1,790,790 ETH with a value of $447,512 to the Trust in connection with Share creations during the period, partially offset by the withdrawal of approximately 25,251 ETH to pay the foregoing Sponsor’s Fee.

Off-Balance Sheet Arrangements

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Selected Operating Data

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Opening balance

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Closing balance

As of June 30,

As of September 30,

Price of ETH on principal market (2)

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

As of September 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 “ 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 .

The Digital Asset Exchanges used to calculate the Index Price as of September 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.

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

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).

As of September 30, 2021, the Trust had a net closing balance with a value of $9,260,932,219, based on the Index Price (non-GAAP methodology).

As of September 30, 2021, the Trust had a total market value of $9,378,778,912, based on the principal market (Coinbase Pro).

As of September 30, 2020, the Trust had a net closing balance with a total value of $806,193,731, based on the Index Price (non-GAAP methodology).

As of September 30, 2020, the Trust had a total market value of $803,953,864, based on the principal market (Coinbase Pro).

Historical Digital Asset Holdings and ETH Prices

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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 June 30, 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 following table illustrates the movements in the Index Price from the beginning of the Trust’s operations on December 14, 2017 to September 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 $719.83 through September 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.

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Last business day

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.

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

Twelve months ended September 30, 2019

Twelve months ended September 30, 2020

Twelve months ended September 30, 2021

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

The following table illustrates the movements in the Digital Asset Market price of ETH, as reported on the Trust’s principal market, from the beginning of the Trust’s operations on December 14, 2017 to September 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 $722.98.

Digital Asset Market Price

End of period

Last business day

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

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

Twelve months ended September 30, 2019

Twelve months ended September 30, 2020

Twelve months ended September 30, 2021

December 14, 2017 (the first Creation Basket of the Trust) to September 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.

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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