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GRAYSCALE ETHEREUM TRUST

(ETHE)
Delayed OTC Markets  -  03:59:59 2023-02-06 pm EST
7.420 USD   -2.37%
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GRAYSCALE ETHEREUM TRUST (ETH) Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/25/2022 | 08:46am EST
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 audited financial statements and related notes included
elsewhere in this Annual Report, which have been prepared in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP"). The
following discussion may contain forward-looking statements based on assumptions
we believe to be reasonable. 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 discussed
below and elsewhere in this Annual Report, particularly in "Item 1A. Risk
Factors" and "Forward-Looking Statements."

Trust Overview


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 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 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. While an investment in the Shares is
not a direct investment in ETH, the Shares are designed to provide investors
with a cost-effective and convenient way to gain investment exposure to ETH. The
Trust is not managed like a business corporation or an active investment
vehicle.


                                                         As of December 31,
                                              2021              2020             2019 3
Number of Shares authorized                 Unlimited         Unlimited         Unlimited
Number of Shares outstanding                310,158,500       285,269,400        47,071,800

Number of Shares freely tradable (1) 304,018,381 46,430,579

4,098,915

Number of beneficial holders owning at
least 100 Shares (2)                                 42               453                95
Number of holders of record (2)                      42               453                95




(1)
Includes the total number of Shares that are not restricted securities as such
term is defined under Rule 144.
(2)
Includes Cede & Co. as nominee for DTC for the Shares traded on OTCQX.
Therefore, this number does not include the individual holders who have
bought/sold Shares on OTCQX or transferred their eligible Shares to their
brokerage accounts.
(3)
Share amounts have been retroactively adjusted to reflect the 9-for-1 Share
Split of the Trust's issued and outstanding Shares completed on December 17,
2020.

Critical Accounting Policies and Estimates

Investment Transactions and Revenue Recognition


The Trust considers investment transactions to be the receipt of ETH for Share
creations and the delivery of ETH for Share redemptions or for payment of
expenses in ETH. At this time, the Trust is not accepting redemption requests
from shareholders. The Trust records its investment transactions on a trade date
basis and changes in fair value are reflected as net change in unrealized
appreciation or depreciation on investments. Realized gains and losses are
calculated using the specific identification method. Realized gains and losses
are recognized in connection with transactions including settling obligations
for the Sponsor's Fee in ETH.

Principal Market and Fair Value Determination


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 NAV, the Trust follows Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") 820-10, which outlines the application
of fair value accounting. ASC 820-10 determines fair value to be the price that
would be received for ETH in a current sale, which assumes an orderly
transaction between market participants on the measurement date. ASC 820-10
requires the Trust to assume that ETH is sold in its principal market to market
participants or, in the absence of a principal market, the most advantageous
market. Market participants are defined as buyers and sellers in the principal
or most advantageous market that are independent, knowledgeable, and willing and
able to transact.

The Trust only receives ETH from the Authorized Participant and does not itself
transact on any Digital Asset Markets. 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 ASC Master Glossary. The
Authorized Participant, as a related party of the Sponsor,

                                       74

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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(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 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 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. As a result of the aforementioned
analysis, an Exchange Market has been selected as the Trust's principal market.

The Trust determines its principal market (or in the absence of a principal
market the most advantageous market) annually and conducts a quarterly analysis
to determine (i) if there have been recent changes to each Digital Asset
Market's trading volume and level of activity in the trailing twelve months,
(ii) if any Digital Asset Markets have developed that the Trust has access to,
or (iii) if recent changes to each Digital Asset Market's price stability have
occurred that would materially impact the selection of the principal market and
necessitate a change in the Trust's determination of its principal market.

The cost basis of the investment in ETH recorded by the Trust for financial
reporting purposes is the fair value of ETH at the time of transfer. The cost
basis recorded by the Trust may differ from proceeds collected by the Authorized
Participant from the sale of the corresponding Shares to investors.

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 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 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. Actual results could differ from those estimates and these
differences could be material.

Review of Financial Results

Financial Highlights for the Years ended December 31, 2021, 2020 and 2019

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


                                                  For the Year Ended 

December 31,

                                              2021              2020        

2019

Net realized and unrealized gain (loss)
on investment                             $   8,946,394     $   1,353,262     $    (39,411 )
Net increase (decrease) in net assets
resulting from operations                 $   8,728,949     $   1,338,132     $    (40,329 )
Net assets                                $  11,351,691     $   2,188,127     $     63,540


Net realized and unrealized gain on investment in ETH for the year ended
December 31, 2021 was $8,946,394 which includes a realized gain of $185,516 on
the transfer of ETH to pay the Sponsor's Fee and net change in unrealized
appreciation on investment in ETH of $8,760,878. Net realized and unrealized
gain on investment in ETH for the year was driven by ETH price appreciation from
$744.99 per ETH as of December 31, 2020 to $3,644.75 per ETH as of December 31,
2021. Net increase in net assets resulting from operations was $8,728,949 for
the year ended December 31, 2021, which consisted of the net realized and
unrealized gain on investment in ETH, less the Sponsor's Fee of $217,445. Net
assets increased to $11,351,691 at December 31, 2021, a 419% increase for the
year. The increase in net assets resulted from the aforementioned ETH price
appreciation and the contribution of approximately 255,556 ETH

                                       75

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with a value of $434,615 to the Trust in connection with Share creations during
the period, partially offset by the withdrawal of approximately 78,146 ETH to
pay the foregoing Sponsor's Fee.

Net realized and unrealized gain on investment in ETH for the year ended
December 31, 2020 was $1,353,262, which includes a realized gain of $4,739 on
the transfer of ETH to pay the Sponsor's Fee and $1,348,523 net change in
unrealized appreciation on investment in ETH. Net realized and unrealized gain
on investment in ETH for the year was driven by ETH price appreciation from
$127.86 per ETH as of December 31, 2019 to $744.99 per ETH as of December 31,
2020. Net increase in net assets resulting from operations was $1,338,132 for
the year ended December 31, 2020, which consisted of the net realized and
unrealized gain on investment in ETH, less the Sponsor's Fee of $15,130. Net
assets increased to $2,188,127 at December 31, 2020, a 3,344% increase for the
year. The increase in net assets resulted from the aforementioned ETH price
appreciation and the contribution of approximately 2,481,763 ETH with a value of
$786,455 to the Trust in connection with Share creations during the period,
partially offset by the withdrawal of 41,594 ETH to pay the foregoing Sponsor's
Fee.

Net realized and unrealized loss on investment in ETH for the year ended
December 31, 2019 was ($39,411), which includes a realized loss of ($1,011) on
the transfer of ETH to pay the Sponsor's Fee, ($9) net change in unrealized
appreciation on the Sponsor's Fee payable, and ($38,391) net change in
unrealized depreciation on investment in ETH. Net realized and unrealized loss
on investment in ETH was driven by ETH price depreciation from $130.90 per ETH
as of December 31, 2018 to $127.86 per ETH as of December 31, 2019. Net decrease
in net assets resulting from operations was ($40,329) for the year ended
December 31, 2019, which consisted of the net realized and unrealized loss on
investment in ETH, plus the Sponsor's Fee of $918. Net assets increased to
$63,540 at December 31, 2019, a 925% increase for the year. The increase in net
assets was due to the contribution of approximately 454,791 ETH with a value of
$97,669 to the Trust in connection with Share creations, partially offset by the
aforementioned ETH price depreciation and the withdrawal of 5,491 ETH to pay the
foregoing Sponsor's Fee.

Cash Resources and Liquidity

The Trust has not had a cash balance at any time since inception. 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. Furthermore, the Trust is not a party to any off-balance sheet
arrangements.

In exchange for the Sponsor's 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 periods covered by this Annual Report was the Sponsor's Fee.
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

                                                           For the Year Ended December 31,
                                                 2021                      2020                 2019 (1)
                                               (All ETH balances are rounded to the nearest whole ETH)
Ethereum:
Opening Balance                                     2,937,122                   496,953              47,653
Creations                                             255,556                 2,481,763             454,791
Sponsor's Fee, related party                          (78,146 )                 (41,594 )            (5,491 )
Closing balance                                     3,114,532                 2,937,122             496,953
Accrued but unpaid Sponsor's Fee,
related party                                               -                         -                   -
Net closing balance                                 3,114,532                 2,937,122             496,953
Number of Shares:
Opening balance                                   285,269,400                47,071,800           4,375,800
Creations                                          24,889,100               238,197,600          42,696,000
Closing balance                                   310,158,500               285,269,400          47,071,800



                                                            December 31,
                                              2021              2020            2019 (1)
Price of ETH on principal market (2)      $    3,644.75     $     744.99     $       127.86
NAV per Share (3)                         $       36.60     $       7.67     $         1.35
Old Index Price (4)                       $    3,730.30     $     740.77     $       130.35
Digital Asset Holdings per Share using
Old Index Price (4)                       $       37.46     $       7.63     $         1.38




                                       76
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(1)

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.
(2)
The Trust performed an assessment of the principal market at December 31, 2021,
2020 and 2019, respectively, and identified the principal market as Coinbase
Pro.
(3)
As of December 31, 2021, 2020 and 2019, respectively, 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.
(4)
Prior to February 1, 2022, the Trust calculated its Digital Asset Holdings and
Digital Asset Holdings per Share by reference to the Old Index Price as of 4:00
p.m., New York time, on the valuation date. The Old Index Price was calculated
using non-GAAP methodology and is not used in the Trust's financial statements.
Effective February 1, 2022, the Trust began using the Index Price to calculate
its Digital Asset Holdings and Digital Asset Holdings per Share as of 4:00 p.m.,
New York time, on the valuation date. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Historical Digital
Asset Holdings and ETH Prices" for further information on the Trust's Digital
Asset Holdings and Digital Asset Holdings per Share calculated using the Index
Price. The Digital Asset Exchanges included in the Index as of December 31, 2021
and 2020 were Coinbase Pro, Kraken, LMAX Digital and Bitstamp. As of December
31, 2019, the Digital Asset Exchanges included in the Index consisted of
Coinbase Pro, Bitstamp, itBit and Kraken.

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. At this time, the Trust is not accepting redemption requests from
shareholders. Subject to receipt of regulatory approval from the SEC and
approval by the Sponsor in its sole discretion, the Trust may in the future
operate a redemption program. The Trust currently has no intention of seeking
regulatory approval to operate an ongoing redemption program.

As of December 31, 2021, the Trust had a net closing balance with a value of
$11,618,139,083, based on the Old Index Price (non-GAAP methodology). As of
December 31, 2021, the Trust had a total market value of $11,351,690,863, based
on the principal market (Coinbase Pro).

As of December 31, 2020, the Trust had a net closing balance with a value of
$2,175,732,163, based on the Old Index Price (non-GAAP methodology). As of
December 31, 2020, the Trust had a total market value of $2,188,126,819, based
on the principal market (Coinbase Pro).

As of December 31, 2019, the Trust had a net closing balance with a value of
$64,777,798, based on the Old Index Price (non-GAAP methodology). As of December
31, 2019, the Trust had a total market value of $63,540,386, based on the
principal market (Coinbase Pro).

Historical Digital Asset Holdings and ETH Prices


As movements in the price of ETH will directly affect the price of the Shares,
investors should understand recent movements in the price of ETH. Investors,
however, should also be aware that past movements in the ETH 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.

For the period from January 1, 2019 to December 31, 2021, the average difference
in price between the Old Index Price and the Index Price and the average
difference in Digital Asset Holdings of the Trust as calculated using the Old
Index Price and the Index Price was 0.40%.

The following chart illustrates the movement in the Index Price, the Old Index
Price, the Trust's Digital Asset Holdings per Share based on the Old Index Price
and the Index Price and the Trust's net asset value per share as calculated in
accordance with GAAP (as adjusted for the Share Split for periods prior to
December 17, 2020) from December 14, 2017 to December 31, 2021. For more
information on the determination of the Trust's Digital Asset Holdings, see
"Item 1. Business-Overview of the ETH Industry and Market-ETH Value-The Index
and the Index Price."

                                       77
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                     [[Image Removed: img22804861_0.jpg]]

The following table illustrates the movements in the Old Index Price from the
beginning of the Trust's operations on December 14, 2017 to December 31, 2021.
Since the beginning of the Trust's operations, the Old Index Price has ranged
from $84.31 to $4,790.65, with the straight average being $929.14. The Sponsor
has not observed a material difference between the Old Index Price and average
prices from the constituent Digital Asset Exchanges individually or as a group.

                                                            High                         Low
                                                                                                                            Last
                                                  Old Index                   Old Index                     End of        business
Period                             Average          Price           Date        Price           Date        period          day
December 14, 2017 (the
inception of the Trust's
operations) to December 31,
2017                              $   715.00     $    818.87     12/19/2017   $   660.31     12/22/2017   $   719.60     $   734.25
Twelve months ended December
31, 2018                          $   478.06     $  1,314.70     1/10/2018    $    84.31     12/14/2018   $   135.07     $   135.07
Twelve months ended December
31, 2019                          $   179.93     $    337.35     6/26/2019    $   102.74      2/6/2019    $   130.35     $   130.35
Twelve months ended December
31, 2020                          $   305.79     $    740.77     12/31/2020   $   114.54     3/16/2020    $   740.77     $   740.77
Twelve months ended December
31, 2021                          $ 2,765.04     $  4,790.65     11/9/2021    $   737.16      1/1/2021    $ 3,730.30     $ 3,730.30
December 14, 2017 (the
inception of the Trust's
operations) to December 31,
2021                              $   929.14     $  4,790.65     11/9/2021    $    84.31     12/14/2018   $ 3,730.30     $ 3,730.30


The following table illustrates the movements in the Index Price from the
beginning of the Trust's operations on December 14, 2017 to December 31, 2021.
Since the beginning of the Trust's operations, the Index Price has ranged from
$82.41 to $4,776.32, with the straight average being $932.92. 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.

                                       78

--------------------------------------------------------------------------------
                                                             High                           Low
                                                                                                                                 Last
                                                                                                                 End of        business
Period                             Average        Index Price         Date       Index Price         Date        period          day
December 14, 2017 (the
inception of the Trust's
operations) to December 31,
2017                              $   728.69     $      825.45     12/19/2017   $      654.51     12/24/2017   $   745.45     $   734.44
Twelve months ended December
31, 2018                          $   480.09     $    1,417.83     1/13/2018    $       82.41     12/14/2018   $   130.84     $   130.84
Twelve months ended December
31, 2019                          $   180.52     $      350.60     6/26/2019    $      102.84      2/6/2019    $   127.84     $   127.84
Twelve months ended December
31, 2020                          $   307.03     $      752.13     12/30/2020   $      109.83     3/16/2020    $   745.01     $   745.01
Twelve months ended December
31, 2021                          $ 2,775.83     $    4,776.32     11/9/2021    $      731.87      1/1/2021    $ 3,644.98     $ 3,644.98
December 14, 2017 (the
inception of the Trust's
operations) to December 31,
2021                              $   932.92     $    4,776.32     11/9/2021    $       82.41     12/14/2018   $ 3,644.98     $ 3,644.98


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 December 31, 2021. Since the
beginning of the Trust's operations, the price of ETH has ranged from $82.34 to
$4,776.95, with the straight average being $933.00:

                                                       High                          Low
                                                                            Digital
                                              Digital                        Asset                                       Last
                                            Asset Market                    Market                       End of        business
Period                        Average          Price            Date         Price           Date        period          day
December 14, 2017 (the
inception of the Trust's
operations) to December
31, 2017                     $   736.08     $     829.91     12/19/2017   $    677.76     12/24/2017   $   750.11     $   733.50
Twelve months ended
December 31, 2018            $   479.95     $   1,418.61     1/13/2018    $     82.34     12/14/2018   $   130.90     $   130.90
Twelve months ended
December 31, 2019            $   180.54     $     350.76     6/26/2019    $    102.88      2/6/2019    $   127.86     $   127.86
Twelve months ended
December 31, 2020            $   307.02     $     751.88     12/30/2020   $    110.29     3/16/2020    $   744.99     $   744.99
Twelve months ended
December 31, 2021            $ 2,775.91     $   4,776.95     11/9/2021    $    731.87      1/1/2021    $ 3,644.75     $ 3,644.75
December 14, 2017 (the
inception of the Trust's
operations) to December
31, 2021                     $   933.00     $   4,776.95     11/9/2021    $     82.34     12/14/2018   $ 3,644.75     $ 3,644.75


Secondary Market Trading

The Trust's Shares have been quoted on OTCQX under the symbol ETHE since June
20, 2019. The price of the Shares as quoted on OTCQX has varied significantly
from the Digital Asset Holdings per Share. From June 20, 2019 to December 31,
2021, the maximum premium of the closing price of the Shares quoted on OTCQX
over the value of the Trust's Digital Asset Holdings per Share was 956% (949%
based on Old Index Price) and the average premium was 191% (187% based on Old
Index Price), and the maximum discount of the closing price of the Shares quoted
on OTCQX below the value of the Trust's Digital Asset Holdings per share was 16%
(15% based on Old Index Price) and the average discount was 6% (6% based on Old
Index Price). As of December 31, 2021, the Trust's Shares were quoted on OTCQX
at a discount of 12% (14% based on Old Index Price) to the Trust's Digital Asset
Holdings per Share. The closing price of the Shares, as quoted on OTCQX at 4:00
p.m., New York time, on each business day, has been quoted at a discount on 210
days (198 days based on Old Index Price).

                                       79

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The following table sets out the range of high and low closing prices for the
Shares as reported by OTCQX, the Trust's net asset value per Share calculated in
accordance with GAAP and the Trust's Digital Asset Holdings per Share using both
the Old Index Price and the Index Price for each of the quarters since June 20,
2019.

                                          High                                                           Low
                                                                Digital                                                       Digital
                                                                 Asset                                                         Asset
                                                                Holdings                                                      Holdings
                                                               per Share                                                     per Share
                                            Digital Asset      using Old                                  Digital Asset      using Old
                              NAV per        Holdings per        Index                      NAV per        Holdings per        Index
                OTCQX        Share (2)         Share(3)         Price(3)       OTCQX        Share(2)         Share(3)         Price(3)
2019
Second
quarter (1)    $  24.67     $      3.75     $         3.75     $     3.61     $  13.33     $     1.51     $         1.51     $     1.52
Third
quarter (1)    $  12.00     $      3.32     $         3.32     $     3.34     $   2.41     $     1.75     $         1.75     $     1.74
Fourth
quarter (1)    $   4.54     $      2.04     $         2.04     $     2.04     $   2.53     $     1.28     $         1.28     $     1.31
2020
First
quarter (1)    $  15.97     $      2.99     $         3.00     $     2.95     $   2.78     $     1.16     $         1.15     $     1.20
Second
quarter (1)    $  26.61     $      2.58     $         2.58     $     2.56     $   7.83     $     1.37     $         1.37     $     1.39
Third
quarter (1)    $  15.89     $      4.94     $         4.94     $     4.79     $   4.26     $     2.35     $         2.35     $     2.36
Fourth
quarter        $  23.40     $      7.74     $         7.74     $     7.63     $   4.33     $     3.52     $         3.53     $     3.51
2021
First
quarter        $  22.09     $     20.39     $        20.39     $    20.44     $  12.00     $     7.53     $         7.53     $     7.59
Second
quarter        $  40.00     $     41.73     $        41.74     $    42.76     $  18.17     $    18.16     $        18.15     $    18.22
Third
quarter        $  38.50     $     39.94     $        39.94     $    39.80     $  16.49     $    18.17     $        18.18     $    17.93
Fourth
quarter        $  46.50     $     48.14     $        48.13     $    48.28     $  31.53     $    33.33     $        33.31     $    31.86




(1)
Per Share amounts have been retroactively adjusted for the 9-for-1 Share Split
of the Trust's issued and outstanding Shares completed on December 17, 2020.
(2)
The NAV is calculated using the fair value of ETH based on the price provided by
the Digital Asset Market that the Trust considers its principal market, which is
Coinbase Pro.
(3)
The Trust calculated its Digital Asset Holdings and Digital Asset Holdings per
Share by reference to the Old Index Price as of 4:00 p.m., New York time, on the
valuation date. Effective February 1, 2022, the Trust began using the Index
Price to calculate its Digital Asset Holdings and Digital Asset Holdings per
Share as of 4:00 p.m., New York time, on the valuation date. See "Item 1.
Business-Overview of the ETH Industry and Market-ETH Value-The Index and the
Index Price-Determination of the Index Price." The Trust's Digital Asset
Holdings are derived from the Index Price as represented by the Index as of 4:00
p.m., New York time, on the valuation date. Prior to February 1, 2022, the
Trust's Digital Asset Holdings per Share was derived from the Old Index Price.
The Index Price is calculated using a non-GAAP methodology and is not used in
the Trust's financial statements. On January 19, 2020, the Index Provider
removed itBit and added LMAX Digital to the Index as part of its scheduled
quarterly review. See "Item 1. Business-Trust Objective and Key Operating
Metrics."

                                       80

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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 based on the
Index Price and the Old Index Price.

ETHE Premium/(Discount): ETHE Share Price vs. Digital Asset Holdings per Share

                                      ($)
                     [[Image Removed: img22804861_1.jpg]]

The following chart sets out the historical premium and discount for the Shares
as reported by OTCQX and the Trust's Digital Asset Holdings per Share based on
the Index Price and the Old Index Price.

ETHE Premium/(Discount): ETHE Share Price vs. Digital Asset Holdings per Share

                                      (%)

                     [[Image Removed: img22804861_2.jpg]]

© Edgar Online, source Glimpses

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