Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
This information should be read in conjunction with the financial
statements and notes to financial statements included with this report. The discussion and analysis that follows may contain statements
that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such
as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential” or the negative of these terms or other
comparable terminology. All statements (other than statements of historical fact) included in this Report that address activities, events
or developments that may occur in the future, including such matters as changes in commodity prices and market conditions (for ethereum
and the Shares), the operations of the Trust, the plans of the Sponsor and references to the Trust’s future success and other similar
matters are forward-looking statements. These statements are only predictions. Actual events or results may differ materially. These statements
are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions
and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether or not actual results
and developments will conform to the Sponsor’s expectations and predictions is subject to a number of risks and uncertainties, including
the special considerations discussed in this Report, general economic, market and business conditions, changes in laws or regulations,
including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments.
Consequently, all the forward-looking statements made in this Report are qualified by these cautionary statements, and there can be no
assurance that the actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, will result
in the expected consequences to, or have the expected effects on, the Trust’s operations or the value of the Shares issued by the
Trust. Moreover, neither the Sponsor nor any other person assumes responsibility for the accuracy or completeness of the forward-looking
statements. Neither the Trust nor the Sponsor undertakes an obligation to publicly update or conform to actual results any forward-looking
statement, whether as a result of new information, future developments or otherwise, except as required by law.
Introduction
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The Trust is a Delaware statutory trust. The Trust does not have directors,
officers or employees. The creation and operation of the Trust has been arranged by the Sponsor. The Trust is administered by the Trust
Agreement, among the Sponsor, the Trustee and the Delaware Trustee. The Trust is managed and controlled by the Sponsor, a wholly-owned
subsidiary of VanEck. The Sponsor is not governed by a board of directors.
The Trust’s investment objective is to reflect the performance
of ETH less the operating expenses of the Trust. The Trust is a passive investment vehicle that does not seek to pursue any investment
strategy beyond tracking the price of ETH. The Trust does not engage in any activities designed to obtain a profit from, or ameliorate
losses caused by, changes in the price of ETH.
The Trust issues and redeems Shares only in aggregations of 25,000 Shares,
a Basket, or integral multiples thereof, and only in transactions with Authorized Participants.
Shares of the Trust trade on the Exchange under the ticker symbol “ETHV.”
Computation of Net Asset Value
The Trust’s NAV is calculated based on the Trust’s net asset
holdings as reconciled to the ETH Custodians’ accounts on a market approach, determined on a daily basis in accordance with
the MarketVector TM Ethereum Benchmark Rate price at 4:00 p.m. ET. The Trust’s NAV per Share is calculated by taking the
current market value of its total assets, subtracting any liabilities, and then dividing that total by the total number of outstanding
Shares. The Trust Agreement gives the Sponsor the exclusive authority to determine the Trust’s NAV and the Trust’s NAV per
Share, which it has delegated to the Administrator.
Liquidity
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. In exchange for a fee, the Sponsor has agreed to assume
most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this Report
was the Sponsor’s Fee. The Trust’s only source of liquidity is its sales of ethereum.
Significant Accounting Policies
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”), management makes estimates and assumptions that affect the reported
amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as
the reported amount of revenue and expenses reported during the period. Actual results could differ from these estimates. In addition,
please refer to Note 2 to the Financial Statements included in this Report for further discussion of the Trust’s accounting policies.
Results
of Operations
The Year Ended December 31, 2024
From January 1, 2024 to May 20, 2024 (date of Seeding), the Trust had
no operations other than a sale to the Seed Capital Investor, the parent of the Sponsor, of 2,000 Shares at a per-Share price of $50.00.
Delivery of the Seed Shares was made on May 20, 2024. Total proceeds to the Trust from the sale of the Seed Shares were $100,000.
On June 25, 2024 (date of initial ether investment), the Seed Shares
were redeemed for cash and the Seed Capital Investor purchased the Seed Creation Baskets, comprising of 200,000 Shares at a per-Share
price of $50.00. Total proceeds to the Trust from the sale of the Seed Creation Baskets were $10,000,000, which resulted in the Trust
receiving 2,929.06 ethereum. Delivery of the Seed Creation Baskets was made on June 26, 2024. The Seed Capital Investor acted as a statutory
underwriter in connection with this purchase.
The Trust’s NAV increased from $100,000 at May 20, 2024 to $146,428,902
at December 31, 2024, a 146,329% increase. The increase in the Trust’s NAV resulted primarily from an increase in the number of
outstanding Shares, which increased from 2,000 Shares at May 20, 2024 to 3,000,000 Shares at December 31, 2024. This is the net result
of 2,000 Seed Shares and 3,400,000 Shares (136 Baskets) being created and 2,000 Seed Shares and 400,000 Shares (16
85
Baskets) being redeemed
during the period, partially offset by a decrease in the price of ETH, which contracted 2.37% from $3,414 at June 25, 2024 to $3,333
at December 31, 2024.
The 2.38% decrease in the NAV per Share from $50.00 at May 20, 2024
to $48.81 at December 31, 2024 is directly related to the 2.37% decrease in the price of ETH during this period.
The NAV per Share of $59.67 on December 6, 2024, was the highest during
the period, compared with a low during the period of $32.59 on September 6, 2024.
Net increase in net assets resulting from operations for the twelve-month
period ended December 31, 2024, was $8,627,398 resulting from an net unrealized appreciation on investment in ethereum of $10,194,816,
a net realized loss of $1,567,418 on ethereum sold for the redemption of Shares and a net investment income of $0. The Trust had no expenses
during the period as the Sponsor Fee was waived by the Sponsor.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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