10-K: Fidelity Ethereum Fund 2025 Annual Report: Growth Amid Volatility

Fidelity Ethereum Fund reports significant asset growth in 2025, reaching $2.2 billion, despite a 10.86% decline in ether's price and market volatility.

Summary

• The Trust was formed on October 31, 2023, and commenced operations on July 23, 2024, with its investment objective being to track the performance of ether as measured by the Fidelity Ethereum Reference Rate Index, adjusted for expenses.
• Net assets increased from $1.6 billion as of December 31, 2024, to $2.2 billion as of December 31, 2025.
• Outstanding Shares rose from 47,175,000 as of December 31, 2024, to 74,550,000 as of December 31, 2025, driven by 126,050,000 Shares issued exceeding 98,675,000 Shares redeemed.
• The price of ether decreased by 10.86% from $3,333.60 on December 31, 2024, to $2,971.55 on December 31, 2025.
• The Net Asset Value (NAV) per Share decreased by 11.08% from $33.34 as of December 31, 2024, to $29.64 as of December 31, 2025.
• The quantity of ether owned by the Trust increased from 471,750 as of December 31, 2024, to 743,795 as of December 31, 2025.
• The net decrease in net assets resulting from operations for the year ended December 31, 2025, was $0.4 billion, comprising a net unrealized appreciation of $0.1 billion and a net realized loss of $0.5 billion from ether sales for redemptions.
• The Sponsor Fee of 0.25% annually began accruing on January 1, 2025, after being contractually waived through December 31, 2024.
• The Trust is passively managed, does not stake its ether, and does not invest in derivatives.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as neutral, reflecting the fund's significant asset growth and robust operational framework, balanced against the underlying asset's price decline and the inherent volatility and regulatory uncertainties of the digital asset market.

Positives

• The Trust experienced significant growth in net assets, increasing from $1.6 billion to $2.2 billion during 2025, indicating strong investor interest and capital inflows.
• The number of outstanding shares and the quantity of ether held by the Trust increased substantially, reflecting continued adoption and investment in the product.
• The Sponsor assumes most ordinary operational and administrative expenses, reducing the direct cost burden on the Trust and its shareholders.
• Fidelity's Enterprise Cybersecurity organization has established a robust risk management program, including third-party audits and continuous monitoring of emerging threats, to protect the Trust's assets.
• Management concluded that the Trust's internal control over financial reporting was effective as of December 31, 2025, as audited by PricewaterhouseCoopers LLP.

Negatives

• The price of ether decreased by 10.86% in 2025, leading to an 11.08% decline in the Trust's NAV per Share.
• The Trust reported a net decrease in net assets from operations of $0.4 billion for 2025, primarily due to a $0.5 billion net realized loss from ether sales for redemptions.
• Digital asset markets have experienced extreme volatility and disruption, including significant negative publicity and liquidity declines, which could materially adversely affect the value of the Shares.
• Concentrated ownership of ether, with the 200 largest wallets holding approximately one-quarter of the outstanding supply, poses a risk that large sales could adversely affect market prices.
• The Trust is passively managed and will not take actions to capitalize on or mitigate the impacts of ether price volatility.

Risks

• The trading prices of many digital assets, including ether, have experienced extreme volatility and may continue to do so, potentially leading to a material adverse effect on the value of the Shares.
• Digital assets are bearer instruments, and the loss, theft, destruction, or compromise of associated private keys could result in permanent loss of the asset.
• The value of the Shares depends on the acceptance of ether in a new and rapidly evolving industry.
• Changes in the governance of the Ethereum network may not receive sufficient support from users and validators, negatively affecting its ability to grow and respond to challenges.
• Difficulties in the creation and redemption process of Baskets could hinder arbitrage, causing the Share price to diverge from the Net Asset Value (NAV).
• Security threats to the Trust's account at the Custodian could result in halting Trust operations, loss of assets, or damage to reputation.
• Ether transactions are irrevocable, and stolen or incorrectly transferred ether may be irretrievable.
• The Index has a limited performance history and may fail to track the global ether price, adversely affecting Share value.
• Digital asset markets in the United States exist in a state of regulatory uncertainty, and adverse legislative or regulatory developments could significantly harm the value of ether or the Shares.
• Regulatory changes or interpretations could obligate an Authorized Participant, the Trust, or the Sponsor to register and comply with new regulations, resulting in potentially extraordinary expenses.
• The treatment of digital assets for U.S. federal, state, and local income tax purposes is uncertain.
• Digital asset networks, including Ethereum, are in early stages of development and may not function as intended.
• Blockchains are dependent upon the internet; disruptions could affect the ability to transfer digital assets.
• A significant majority of node operators updating their Ethereum Client could subject the network to new protocols that may adversely affect the value of ether.
• Many digital asset networks, including Ethereum, face significant scaling challenges, and efforts to increase transaction volume and speed may not be successful.
• Flaws in the source code for blockchains, their respective native assets, and digital assets they host have been exposed and exploited.
• The cryptography underlying ether could prove to be breakable or ineffective due to advances in mathematics and/or technology, such as quantum computing.
• The Shanghai upgrade, allowing users to unstake ether, could lead to significant volumes of currently locked and illiquid ether being sold, increasing volatility.
• The open-source nature of the Ethereum network protocol means developers are generally not directly compensated, potentially leading to a lack of financial incentive to maintain or develop the network.
• Decentralized governance of the Ethereum network could lead to ineffective decision-making that slows development and growth.
• A temporary or permanent fork in the Ethereum network could adversely affect the value of the Shares or the ability of the Trust to operate.
• The inability to recognize the economic benefit of a fork or an air drop could adversely impact an investment in the Trust, as the Trust irrevocably abandons such assets.
• Malicious actors may attempt to double spend ether by altering the formation of the blockchain.
• Any name change and associated rebranding initiative by the core developers of ether may not be favorably received, negatively impacting its value.
• Smart contracts, including those relating to DeFi applications, are a new technology, and their ongoing development and operation may result in problems, reducing demand for ether or confidence in the Ethereum network.
• Validators may suffer losses due to staking (penalties, slashing, inactivity leaks), which could make the Ethereum network less attractive.
• Proof-of-stake blockchains are a relatively recent innovation and have not been subject to as widespread use or adoption over as long a period as proof-of-work blockchains.
• Centralization concerns around a single person or entity controlling a large percentage of the validating stake (e.g., Lido) could negatively affect the use and adoption of the Ethereum network.
• Spot markets on which ether trades are relatively new and largely unregulated or may not be complying with existing regulations, increasing exposure to fraud and security breaches.
• The value of a single unit of ether may be subject to momentum pricing due to speculation, leading to greater volatility.
• The loss or destruction of a private key required to access ether may be irreversible.
• Competition from central bank digital currencies (CBDCs) could adversely affect the value of ether.
• Prices of ether may be affected by stablecoins, the activities of stablecoin issuers, and their regulatory treatment, including risks of de-pegging or reduced liquidity.
• Competition from the emergence or growth of other digital assets or methods of investing in ether could have a negative impact on the price of ether.
• Large-scale sales or distributions by entities holding significant amounts of ether could significantly reduce its price.
• Congestion or delay in the Ethereum network may delay purchases, sales, or transfers of ether by the Trust.
• If digital asset awards or transaction fees are not sufficiently high, validators may demand high fees or cease validating, negatively impacting the network.
• The presence of Maximal Extractable Value (MEV) may incentivize practices like sandwich attacks or front running, which can have negative repercussions on DeFi users and deter network usage.
• If the Ethereum network is used to facilitate illicit activities or evade sanctions, businesses transacting in ether could face increased legal risks or service cut-offs.
• Investing in ether and the Trust is speculative and involves a high degree of risk, including the potential loss of the entire investment.
• The NAV may not always correspond to the market price of ether due to various factors, including price volatility and supply/demand dynamics.
• The performance of the Trust will not reflect the specific return an investor would realize if they held or purchased ether directly, due to fees, transaction costs, and forgone rights like air drops.
• The Trust is subject to index tracking risk, meaning it may not achieve the desired correlation with the Index.
• The Trust and Authorized Participants face liquidity risk due to limited trading volume, lack of market makers, or legal restrictions in ether markets.
• The value of the Shares may be influenced by factors unrelated to the value of ether, such as unanticipated operational problems, security vulnerabilities, or service provider terminations.
• An Authorized Participant's buying and selling activity associated with Basket creation and redemption may adversely affect an investment in the Shares.
• The inability of Authorized Participants and market makers to hedge their ether exposure may adversely affect the liquidity of Shares.
• Arbitrage transactions intended to keep the price of Shares linked to ether may be problematic if creation and redemption processes encounter difficulties.
• The use of cash creations and redemptions may adversely affect arbitrage due to potential operational issues and delays.
• Authorized Participants serving competing exchange-traded ether products could adversely affect the Trust's operations and secondary market for Shares.
• The Trust's Custodian could become insolvent or subject to receivership/bankruptcy, potentially resulting in loss of or delay in access to Trust assets.
• Loss of a critical banking relationship for, or the failure of a bank used by, the Trust could adversely impact its ability to create or redeem Baskets or cause losses.
• The Trust is subject to risks due to its concentration of investments in a single asset class (ether).
• The lack of active trading markets for the Shares may result in losses on Shareholders' investments at the time of disposition.
• The amount of ether represented by the Shares will decline over time due to the payment of Sponsor Fees and other liabilities.
• The Sponsor may need to find and appoint a replacement custodian quickly, which could pose a challenge to the safekeeping of the Trust's ether.
• The Custodian and other service providers have limited liability, impairing the Trust's ability to recover losses.
• Intellectual property rights claims may adversely affect the Trust and the value of the Shares.
• Unforeseeable risks exist due to ether's relatively short commercial acceptance and the rapidly evolving nature of the market.
• The Sponsor's policies and procedures may not fully mitigate the risk of conflicts of interest, particularly regarding personal trading activity in ether.
• Potential conflicts of interest may arise among the Sponsor or its affiliates and the Trust, as the Sponsor may favor its own interests.
• The Index Provider has substantial discretion to change the methodology used to calculate the Index, which could adversely affect performance.
• The Index is based on inputs from digital asset spot markets that are not registered with or supervised by the SEC or CFTC.
• The Sponsor may change the Index or other valuation method used to calculate the NAV of the Trust.
• The VWMP methodology used to determine the NAV may not be reflective of market events and other developments that occur after its pricing window.
• Shareholders do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or commodity pools under the Commodity Exchange Act.
• Future and current regulations by U.S. or foreign governments or quasi-governmental agencies could have an adverse effect on an investment in the Trust.
• Future regulations may require the Trust or the Sponsor to become registered, which may cause the Trust to liquidate.
• If regulatory changes require the regulation of an Authorized Participant, the Trust, or the Sponsor as a money services business or money transmitter, it could result in extraordinary expenses or reduced liquidity of Shares.
• The ongoing activities of the Trust may generate tax liabilities for Shareholders, who will need to satisfy them from other sources as the Trust does not anticipate making distributions.
• The tax treatment of ether and transactions involving ether for U.S. federal income tax purposes may change, possibly with retroactive effect.
• A hard fork of the Ethereum Blockchain could result in Shareholders incurring a tax liability.
• The intended grantor trust tax treatment of the Trust will limit the flexibility of its investment decisions.
• The Exchange on which the Shares are listed may halt trading, adversely impacting a Shareholder's ability to sell Shares.
• Shareholders have no right or power to take part in the management of the Trust.
• The Trust is new, and if it is not profitable, it may terminate and liquidate at a time that is disadvantageous to Shareholders.
• Shareholders do not have the rights enjoyed by investors in certain other vehicles and may be adversely affected by a lack of statutory rights and by limited voting and distribution rights.
• Creation or redemption orders may be subject to postponement, suspension, or rejection under certain circumstances.
• Shareholders may be adversely affected by an overstatement or understatement of the NAV calculation due to the valuation methodology employed.
• The Trust Agreement includes provisions that limit Shareholders' voting rights and restrict their right to bring a derivative action, requiring a 10.0% collective holding by non-affiliated Shareholders.

Future Outlook

The filing highlights ongoing developments in the Ethereum network, such as sharding and Layer 2 solutions, aimed at increasing speed, throughput, and scalability. It also notes the continued evolution of federal, state, and foreign government regulations for digital assets, with the CLARITY Act and GENIUS Act representing the first comprehensive federal frameworks in the U.S. The SEC's Crypto Task Force is actively working on developing a clear regulatory framework. However, substantial uncertainty remains regarding the implementation and interpretation of these new laws, and their impact on the digital asset ecosystem.

Management Comments

• The Sponsor believes that the Shares are designed to provide investors with a cost-effective and convenient way to invest in ether without purchasing, holding and trading ether directly.
• The Sponsor believes that the security procedures that the Sponsor and the Custodian utilize, such as hardware redundancy, segregation and offline data storage protocols, are reasonably designed to safeguard the Trust's ether from theft, loss, destruction or other issues relating to hackers and technological attack.
• The Sponsor is continuing to monitor and evaluate the Trust's risk management processes and policies and believes that the current risk management processes and procedures are reasonably designed and effective.
• The Sponsor has not observed a material difference between the Index Price and average prices from the constituent ether spot markets individually or as a group.

Industry Context

StockSavvy.ai notes that the digital asset industry, particularly Ethereum, is undergoing rapid technological evolution with significant efforts towards scalability (e.g., Layer 2 solutions, sharding) and regulatory maturation. The passage of the CLARITY Act and GENIUS Act in 2025 marks a pivotal shift towards comprehensive federal regulation in the U.S., aiming to provide clarity on asset classification and oversight. However, the industry continues to grapple with extreme volatility, security concerns, and the aftermath of major market disruptions like the FTX bankruptcy, which have heightened regulatory scrutiny and impacted investor confidence. The fund's growth in assets under management despite a declining ether price suggests sustained institutional interest in regulated crypto investment products.

Comparison to Industry Standards

• The fund's 0.25% Sponsor Fee is competitive within the nascent spot Ethereum ETF market, aligning with efforts to attract investors by offering a cost-effective exposure to ether.
• The use of a Volume-Weighted Median Price (VWMP) methodology for its Index, calculated every 15 seconds over rolling sixty-minute increments, is a sophisticated approach designed to mitigate idiosyncratic market risk and deter manipulation, a common concern in less regulated digital asset markets.
• The fund's reliance on Fidelity Digital Assets, N.A., a national trust bank, for custody services, and its adherence to Article 8 of the New York Uniform Commercial Code for treating ether as financial assets, sets a high standard for institutional-grade security and legal clarity compared to many unregulated digital asset custodians.
• The fund's passive management strategy, without staking or derivatives, contrasts with actively managed crypto funds or direct ether holdings that might seek additional yield through staking, potentially offering lower returns but also lower operational complexity and risk.

Management Changes

Corporate Governance

Legal Proceedings

• The SEC previously charged Coinbase, Binance, and Kraken with operating unregistered exchanges, brokerages, and clearing agencies. Joint stipulations to dismiss the SEC's lawsuits with Coinbase and Binance have been entered, and an agreement in principle with Kraken has been reached, all subject to court/SEC approval.
• The New York Attorney General brought charges against Gemini, Genesis Global Capital, and numerous affiliates in October 2023, alleging violations related to the Gemini Earn program. A settlement of the charges with the Genesis entities was approved by the Bankruptcy Court of the Southern District of New York in May 2024.

Related Party Transactions

• FD Funds Management LLC (Sponsor) is a wholly-owned subsidiary of FMR LLC.
• Fidelity Service Company, Inc. (Administrator) is an affiliate of the Sponsor.
• Fidelity Digital Assets, N.A. (Custodian) is an affiliate of the Sponsor.
• Fidelity Distributors Company LLC (Distributor) is an affiliate of the Sponsor.
• Fidelity Product Services LLC (Index Provider) is an affiliate of the Sponsor.
• FMR Capital, Inc. (Seed Capital Investor) is an affiliate of the Sponsor.
• The Trust pays an annual Sponsor Fee to the Sponsor.
• The Sponsor assumes and pays most ordinary operational and administrative expenses incurred by the Trust.
• The Trust has agreements with ether trading counterparties, including JSCT, LLC (an affiliate of Jane Street Capital LLC, an Authorized Participant) and Virtu Financial Singapore Pte. Ltd. (an affiliate of Virtu Americas LLC, an Authorized Participant).

Stakeholder Impact

• Shareholders: Experience direct exposure to ether price movements, subject to Trust expenses. Face risks from market volatility, regulatory changes, and operational issues. Have limited voting rights and restricted derivative action rights. May incur tax liabilities without receiving distributions.
• Authorized Participants: Responsible for creation/redemption orders, transaction fees, and potential slippage costs. Their ability to effectively arbitrage is crucial for maintaining Share price alignment with NAV.
• Fidelity (Sponsor & Affiliates): Benefits from the 0.25% annual Sponsor Fee. Manages Trust operations, including administration, custody, distribution, and index services through its affiliates. Faces potential conflicts of interest due to its multiple roles.
• Ethereum Network Participants (Users, Validators, Developers): The Trust's operations contribute to the demand for ether. The health and development of the Ethereum network (e.g., scalability, security, governance) directly impact the value of the Trust's holdings.
• Regulators: The filing highlights ongoing scrutiny and evolving regulatory frameworks (SEC, CFTC, state regulators, CLARITY Act, GENIUS Act), indicating a significant impact on the digital asset industry and the Trust's operating environment.

Next Steps

• Continued development of the Ethereum network protocols to increase speed, throughput, and scalability (e.g., sharding, Layer 2 solutions).
• Subsequent rulemaking by federal and state regulators, interagency coordination, and evolving enforcement approaches related to the CLARITY Act and GENIUS Act.
• Potential emergence of new service providers to store historical blob data beyond the pruning period introduced by EIP 4844.
• Ongoing monitoring and evaluation of the Trust's risk management processes and policies by the Sponsor.

Key Dates

Recommendation

The Fidelity Ethereum Fund demonstrated substantial asset growth in 2025, indicating strong investor demand for regulated exposure to ether. However, the underlying asset, ether, experienced a notable price decline during the same period, leading to a decrease in the fund's NAV per share and a significant net realized loss from operations. While the fund benefits from a robust operational and cybersecurity framework provided by Fidelity, and new federal regulatory clarity is emerging, the inherent volatility of digital assets and ongoing regulatory uncertainties present considerable risks. Given the mixed financial performance of the underlying asset and the evolving market landscape, a "hold" recommendation is appropriate for seasoned investors, suggesting continued monitoring of market conditions, regulatory developments, and the fund's ability to track ether's performance net of fees.

Keywords

Ethereum, Ether, Digital Assets, Cryptocurrency, SEC Filing, 10-K, Fidelity, FETH, Blockchain, Investment, Financial Report, Market Volatility, Regulation, Custody, Smart Contracts, DeFi, Proof-of-Stake, NAV, Exchange-Traded Product