10-K: Fidelity Ethereum Fund Reports First Annual Results, Holdings Reach $1.57 Billion

Fidelity Ethereum Fund's first annual report reveals significant growth in ether holdings and net assets, despite a slight decrease in the price of ether during the reporting period.

Summary

• Fidelity Ethereum Fund (FETH) released its annual report for the fiscal year ended December 31, 2024.
• The Trust's investment objective is to track the performance of ether, the native token of the Ethereum blockchain.
• The Trust's net assets increased from $4.4 million on June 30, 2024, to $1.6 billion on December 31, 2024.
• Outstanding shares rose from 125,000 to 47,175,000 during the period July 23, 2024, through December 31, 2024.
• The price of ether decreased by 3.34% from $3,448.77 on July 23, 2024, to $3,333.60 on December 31, 2024.
• The Trust's NAV per Share decreased 3.88% from $34.79 on July 23, 2024, to $33.44 on December 31, 2024.
• The quantity of ether owned by the Trust increased from 1,250 on June 30, 2024, to 471,750 on December 31, 2024.
• The net decrease in net assets resulting from operations for the period ended December 31, 2024, was $9.1 million.
• The Sponsor contractually waived the Sponsor Fee until December 31, 2024, and will accrue at an annual rate of 0.25% of the Trusts Ether Holdings after the Waiver period ends.

Sentiment

Score: 7

Explanation: The sentiment is neutral to positive. While the price of ether decreased slightly, the fund experienced significant growth in assets and holdings, indicating strong investor interest. The competitive expense ratio and passive management strategy are also positives.

Positives

• Significant growth in net assets and ether holdings since the Trust's inception.
• The Trust provides a cost-effective and convenient way to invest in ether without directly purchasing, holding, and trading it.
• The Sponsor has contractually agreed to assume most of the expenses incurred by the Trust.
• The Trust uses a volume-weighted median price (VWMP) methodology to calculate the Index, which mitigates against idiosyncratic market risk and manipulation.

Negatives

• The price of ether decreased slightly during the reporting period, impacting the Trust's NAV per share.
• The Trust's investment strategy is concentrated in a single asset, ether, which maximizes exposure to market risks.
• The Trust experienced a net decrease in net assets resulting from operations of $9.1 million for the period ended December 31, 2024.

Risks

• The Trust's investment strategy is concentrated in a single asset, ether, which maximizes the degree of the Trust's exposure to a variety of market risks associated with ether and digital assets.
• The value of the Shares may be affected by various factors, including government regulation, security breaches, and political and economic uncertainties.
• The Trust is vulnerable to a 51% attack where, if a validator or group of validators acting in concert were to gain control of more than 50% of the staked ether, a malicious actor would be able to gain full control of the network and the ability to manipulate the Ethereum blockchain.

Future Outlook

The Trust will continue to seek to track the performance of ether, as measured by the performance of the Index, adjusted for the Trust's expenses and other liabilities.

Industry Context

The report provides insights into the growing interest in digital asset investment vehicles, particularly those offering exposure to Ethereum. The fund's performance and growth are indicative of the increasing institutional and retail participation in the cryptocurrency market.

Comparison to Industry Standards

• Comparable Ethereum ETFs include those offered by Grayscale, BlackRock, and VanEck.
• Grayscale Ethereum Trust (ETHE) is a major competitor, but operates as a trust rather than an ETF, which affects its tradability and fees.
• BlackRock's iShares Ethereum Trust (ETHA) is a direct competitor as a spot Ethereum ETF, offering similar exposure.
• VanEck Ethereum Trust (EFUT) is another competitor, focusing on providing exposure to Ethereum through a regulated investment vehicle.
• Fidelity's expense ratio of 0.25% (after the waiver period) is competitive with industry standards, potentially lower than some competitors like Grayscale's ETHE.

Related Party Transactions

• FD Funds Management LLC (the Sponsor) is a wholly-owned subsidiary of FMR LLC.
• Fidelity Service Company, Inc., an affiliate of the Sponsor, serves as the Trusts administrator.
• Fidelity Digital Asset Services, LLC, an affiliate of the Sponsor, serves as the Trusts ether custodian.
• Fidelity Distributors Company LLC, an affiliate of the Sponsor, is responsible for reviewing and approving the marketing materials prepared by the Sponsor.
• Fidelity Product Services LLC, an affiliate of the Sponsor, is responsible for the methodology and oversight of the Index.

Stakeholder Impact

• Shareholders are provided with a cost-effective and convenient way to invest in ether.
• Authorized Participants are responsible for any transfer tax, sales or use tax, stamp tax, recording tax, value added tax or similar tax or governmental charge applicable to the creation or redemption of baskets.
• The Trust's activities may impact the ether market, affecting the price of ether and the ability of Authorized Participants to effectively arbitrage the difference between the price at which the shares trade and the NAV of the Trust.

Key Dates