S-1/A: Bitwise Files Amendment for Ethereum ETF, Eyes NYSE Arca Listing

Bitwise aims to launch an Ethereum ETF, seeking listing on NYSE Arca under the ticker ETHW, with a focus on direct exposure to ether's value.

Summary

• Bitwise has filed an amendment to its Form S-1 registration statement for the Bitwise Ethereum ETF.
• The ETF aims to provide investors with exposure to the value of ether, less expenses, by holding ether directly.
• The ETF plans to list on NYSE Arca under the ticker symbol ETHW.
• The Trust will value its ether holdings based on the CME CF Ether Dollar Reference Rate New York Variant (Pricing Benchmark).
• The Sponsor Fee is 0.20% per annum of the Trusts ether holdings, but will be waived on the first $500 million of Trust assets for the initial 6 months.
• Pantera Capital Management LP has indicated an interest in purchasing up to $100 million of Shares in this offering.
• The Trust will create and redeem shares in blocks of 10,000 (Baskets) with Authorized Participants.
• The offering is intended to be a continuous offering and is not expected to terminate until three years from the date of the original offering.
• The Trust will not directly or indirectly participate in any staking program.

Sentiment

Score: 7

Explanation: The document is primarily factual and descriptive, outlining the structure and operation of the proposed ETF. The sentiment is neutral to positive, reflecting the potential for a new investment product but also acknowledging the inherent risks.

Positives

• The ETF offers a cost-effective way for investors to gain exposure to ether without directly holding the digital asset.
• The Sponsor Fee will be waived on the first $500 million of Trust assets for the initial 6 months.
• The Trust will not directly or indirectly participate in any staking program.

Negatives

• Investing in the Trust involves risks similar to those involved with an investment directly in ether and other significant risks.
• The Shares are speculative securities and their purchase involves a high degree of risk and you could lose your entire investment.
• The Trusts return may not match the performance of the Pricing Index because the Trust incurs operating expenses.
• The NAV of the Trust may not always correspond to the market price of its Shares for a number of reasons.

Risks

• The trading prices of many digital assets, including ether, have experienced extreme volatility in recent periods and may continue to do so.
• A decline in the adoption of ether could negatively impact the Trust.
• Many digital assets, including ether, were only introduced within the past decade, and the medium-to-long-term value of the Shares is subject to a number of factors relating to the capabilities and development of blockchain technologies.
• Recent developments in the digital asset economy have led to extreme volatility and disruption in digital asset markets, a loss of confidence in participants of the digital asset ecosystem, significant negative publicity surrounding digital assets broadly and market-wide declines in liquidity.
• Digital assets may have concentrated ownership, and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital assets.
• The Ether Custodians loss of access to a private key associated with the Trusts ether could adversely affect an investment in the Shares.
• New competing digital assets may pose a challenge to ethers current market dominance, resulting in a reduction in demand for ether, which could have a negative impact on the price of ether and may have a negative impact on the performance of the Trust.
• Competition from central bank digital currencies (CBDCs) and emerging payments initiatives involving financial institutions could adversely affect the value of ether and other digital assets.
• The price of ether may be affected due to stablecoins (including Tether and USDC), the activities of stablecoin issuers and their regulatory treatment.
• If the digital asset award or transaction fees for recording transactions on the Ethereum network are not sufficiently high to incentivize validators, or if certain jurisdictions continue to limit or otherwise regulate validating activities, validators may cease expanding validating power or demand high transaction fees, which could negatively impact the value of ether and the value of the Shares.
• If a malicious actor obtains control of more than 50% of the validating stake on the Ethereum network, or otherwise obtains control over the Ethereum network through its influence over core developers or otherwise, such actor could manipulate the Ethereum blockchain, which could adversely affect the value of the Shares or the ability of the Trust to operate.
• The digital asset trading platforms on which ether trades are relatively new and largely unregulated or may not be complying with existing regulations.
• The Pricing Index, ERR and CME Ether Real Time Price each have a limited history.
• The Trust is subject to risks due to its concentration of investments in a single asset class.
• Security threats and cyber-attacks could result in the halting of Trust operations and a loss of Trust assets or damage to the reputation of the Trust, each of which could result in a reduction in the price of the Shares.
• The development and commercialization of the Trust is subject to competitive pressures.
• The lack of active trading markets for the Shares may result in losses on investors investments at the time of disposition of Shares.
• Possible illiquid markets may exacerbate losses or increase the variability between the Trusts NAV and its market price.
• The Trusts ether may be subject to loss, damage, theft or restriction on access.
• Several factors may affect the Trusts ability to achieve its investment objective on a consistent basis.
• The amount of ether represented by a Share will decline over time.
• Extraordinary expenses resulting from unanticipated events may become payable by the Trust, adversely affecting an investment in the Shares.
• The value of the Shares will be adversely affected if the Trust is required to indemnify the Trustee, the Administrator, the Transfer Agent, the Ether Custodian, the Prime Execution Agent or the Cash Custodian.
• The Sponsor and its management have a limited history of operating an investment vehicle like the Trust, their experience may be inadequate or unsuitable to manage the Trust.
• Future and current regulations by a U.S. or foreign government or quasi-governmental agency could have an adverse effect on an investment in the Trust.
• The IRS may disagree with or seek to challenge the Trusts treatment as a grantor trust.
• The tax treatment of ether and transactions involving ether for U.S. federal income tax purposes may change.
• A fork of the Ethereum blockchain or an airdrop could result in Shareholders incurring a tax liability.
• The Exchange on which the Shares are listed may halt trading in the Shares, which would adversely impact an investors ability to sell Shares.
• The liquidity of the Shares may also be affected by the withdrawal from participation of Authorized Participants, which could adversely affect the market price of the Shares.
• The market infrastructure of the ether spot market could result in the absence of active Authorized Participants able to support the trading activity of the Trust.
• The Authorized Participants serve in such capacity for several competing exchange-traded ether products, which could adversely affect the market for the Shares.
• Shareholders that are not Authorized Participants may only purchase or sell their Shares in secondary trading markets, and the conditions associated with trading in secondary markets may adversely affect investors investment in the Shares.
• The Sponsor is leanly staffed and relies heavily on key personnel to manage its activities.
• Conducting creations and redemptions for cash has drawbacks.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust.
• The Trust is new, and if it is not profitable, the Trust may terminate and liquidate at a time that is disadvantageous to Shareholders.
• The Sponsor may discontinue its services, which may be detrimental to the Trust.
• Any of the service providers could resign or be removed by the Trust, which could trigger early termination of the Trust.
• The lack of independent advisers representing investors in the Trust may cause Shareholders to be adversely affected.
• Shareholders limited rights of legal recourse against the Trust, Sponsor, Administrator, Transfer Agent, Cash Custodian, Prime Execution Agent and Ether Custodian and the Trusts lack of direct insurance protection expose the Trust and its Shareholders to the risk of loss of the Trusts ether for which no person is liable.
• During the rare and limited circumstances when the Trust utilizes the Agent Execution Model, it may utilize Trade Credits. If the Trade Credits are not available or become exhausted, the Trust may face delays in buying or selling ether that may adversely impact Shareholders; if the Trust does not repay the Trade Credits on time, its assets may be liquidated by the Trade Credit Lender and its affiliates.
• Loss of a critical banking relationship for, or the failure of a bank used by, the Prime Execution Agent could adversely impact the Trusts ability to create or redeem Baskets, or could cause losses to the Trust, in the limited circumstances when the Trust utilizes the Agent Execution Model.

Future Outlook

The Trust intends to issue Shares on a continuous basis and is registering an indeterminate number of Shares. The offering is intended to be a continuous offering and is not expected to terminate until three years from the date of the original offering, unless extended as permitted by applicable rules under the 1933 Act.

Industry Context

The filing comes amid growing interest in cryptocurrency ETFs, particularly those holding ether directly. The SEC has been under pressure to approve such products, and this filing represents a step towards offering investors a regulated and accessible way to invest in ether.

Comparison to Industry Standards

• The proposed ETF is similar in structure to existing Bitcoin ETFs, such as the Grayscale Bitcoin Trust (GBTC) and the iShares Bitcoin Trust (IBIT), which hold Bitcoin directly and offer shares to investors.
• The Sponsor Fee of 0.20% is competative with other ETFs in the market.
• The indication of interest from Pantera Capital Management LP is similar to the seed investment seen in other ETF launches, providing initial liquidity and stability.

Related Party Transactions

• Bitwise Asset Management, Inc., the parent of the Sponsor, served as seed capital investor to the Trust.
• Bitwise Investment Manager, LLC, an affiliate of the Sponsor, is expected to purchase the initial Baskets of Shares for $2,500,000.
• JSCT, LLC is an affiliate of Jane Street Capital, LLC, which is an Authorized Participant to the Trust.
• Coinbase, Inc. (Coinbase Inc. or the Prime Execution Agent, which is an affiliate of the Ether Custodian)

Stakeholder Impact

• Shareholders will have a regulated and accessible way to invest in ether.
• Authorized Participants will have the opportunity to create and redeem Baskets of Shares.
• The broader market may benefit from increased liquidity and price discovery for ether.

Next Steps

• The SEC must review and approve the registration statement.
• NYSE Arca must approve the listing of the Shares.
• The Trust must secure agreements with Authorized Participants.
• The Trust must acquire ether to seed the ETF.

Key Dates

Keywords

Ethereum ETF, Bitwise, ETHW, Ether, ETF, Exchange Traded Fund, Digital Asset, Cryptocurrency, NYSE Arca, Sponsor Fee