Fidelity Ethereum Fund 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Filing date:

03/14/2025


TLDR:

ELI5:

Imagine a special piggy bank that holds Ethereum. This report shows how much Ethereum is in the bank, how the value changed, and some things that could make the value go up or down, like the price of Ethereum changing or new rules about cryptocurrency.


Accession #:

0000950170-25-039374

Published on

Analyst Summary

  • Fidelity Ethereum Fund (FETH) net assets totaled $1,572.626 million as of December 31, 2024, entirely invested in ether.
  • The fund experienced a net decrease in net assets resulting from operations of $9.115 million, driven by realized and unrealized losses on its ether holdings.
  • Capital share transactions, primarily issuances, significantly boosted net assets by $1,581.741 million, offsetting operational losses.
  • The fund’s Return on Assets (ROA) is -0.57% and Return on Equity (ROE) is -0.58%.
  • The fund’s current and quick ratios are both 1.00, indicating adequate liquidity.
  • The debt-to-equity and debt-to-assets ratios are low, at 0.02 each.
  • The sponsor waived the entire sponsor fee of $644,000, significantly impacting the fund’s expenses.
  • Total Return at NAV: -4.41% for the period July 23, 2024 to December 31, 2024.
  • Total Return at Market Value: -4.20% for the period July 23, 2024 to December 31, 2024.

Opportunities and Risks

  • Ether Price Volatility: The fund’s performance is directly tied to the price of Ether, which is subject to significant fluctuations.
  • Cybersecurity: The fund relies on Fidelity’s cybersecurity infrastructure and third-party vendors, making it vulnerable to cyberattacks.
  • Regulatory Changes: The evolving regulatory landscape for digital assets poses a risk to the fund’s operations.
  • Competition: The emergence of competing digital assets and smart contract platforms could impact the demand for Ether.
  • 51% Attack: The Ethereum network is vulnerable to a 51% attack, where a malicious actor could gain control of the network and manipulate the blockchain.
  • Growing Investor Interest: Increasing institutional and retail investor interest in Ether could drive further asset growth.
  • Ethereum Network Development: Ongoing development and upgrades to the Ethereum network could enhance its utility and value.
  • First-Mover Advantage: As one of the first Ether-based ETFs, the fund has a potential advantage in attracting investors.

Potential Implications

Company Performance

  • Continued asset growth is dependent on investor demand for Ether exposure and the fund’s ability to attract and retain assets.
  • The fund’s performance will be significantly impacted by Ether price volatility and the success of the Ethereum network.
  • Future profitability will depend on managing expenses, particularly after the sponsor fee waiver expires.

Stock Price

  • The fund’s stock price will closely track the NAV per share, which is directly influenced by the price of Ether.
  • Regulatory developments and cybersecurity incidents could negatively impact investor sentiment and the fund’s stock price.
  • Positive developments in the Ethereum network and increased investor interest in Ether could drive the fund’s stock price higher.

SEC Filing Report: Fidelity Ethereum Fund 10-K (2024)

Executive Summary

This report analyzes the Fidelity Ethereum Fund’s (FETH) 10-K filing for the fiscal year ended December 31, 2024. The fund, which aims to track the performance of Ether, commenced operations on July 23, 2024. Key findings include significant asset growth driven by share issuance, a slight decrease in NAV per share due to Ether price fluctuations, and a contractual waiver of the sponsor fee for the initial period. The fund’s financial statements are prepared in accordance with GAAP, valuing Ether at fair market value. Risks associated with Ether, cybersecurity, and regulatory changes are noted. Overall, the fund appears to be operating as intended, providing investors with exposure to Ether through a traditional investment vehicle. A “hold” recommendation is appropriate at this time, pending further observation of the fund’s performance and the evolving regulatory landscape.

Company Overview

Fidelity Ethereum Fund (FETH) is a Delaware statutory trust offering shares representing fractional ownership of Ether. The fund is passively managed, aiming to track the Fidelity Ethereum Reference Rate (Index). FD Funds Management LLC serves as the sponsor, with Fidelity Digital Asset Services, LLC acting as the custodian for the fund’s Ether holdings. The fund’s shares are listed on the Cboe BZX Exchange. The fund provides a regulated and accessible way for investors to gain exposure to Ether without directly holding the digital asset.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

The MD&A highlights the fund’s growth in net assets from $4.4 million on June 30, 2024, to $1.6 billion on December 31, 2024. This growth was primarily driven by the issuance of new shares, offset by a slight decrease in the price of Ether. The MD&A also emphasizes the fund’s passive management strategy and its reliance on the Fidelity Ethereum Reference Rate for valuation. The sponsor’s fee waiver until December 31, 2024, is a notable factor impacting the fund’s expenses.

Financial Statement Analysis

Statement of Assets and Liabilities

As of December 31, 2024, the fund’s primary asset is its investment in Ether, valued at $1,572.6 million. Receivables from share issuances are offset by payables for Ether purchases, indicating active creation and redemption activity. The net asset value per share is $33.34.

Statement of Operations

The fund’s net decrease in net assets resulting from operations was $9.1 million, primarily due to a net realized loss on Ether investments ($41.3 million) partially offset by net unrealized appreciation ($32.2 million). The sponsor fee was waived for the period.

Statement of Cash Flows

The statement of cash flows reflects significant cash inflows from share issuances and outflows for Ether purchases, consistent with the fund’s growth strategy.

Key Ratios and Trends

* **Asset Growth:** Significant increase in assets under management (AUM) from June to December 2024, indicating strong investor demand.
* **NAV per Share:** Slight decrease in NAV per share, reflecting Ether price volatility.
* **Expense Ratio:** Effectively zero for the period due to the sponsor fee waiver. The future expense ratio will be 0.25% annually.

Uncommon Metrics

The filing does not explicitly disclose uncommon metrics. However, the reliance on the Fidelity Ethereum Reference Rate and the volume-weighted median price (VWMP) methodology for valuation are noteworthy.

Risk and Opportunity Assessment

Risks

* **Ether Price Volatility:** The fund’s performance is directly tied to the price of Ether, which is subject to significant fluctuations.
* **Cybersecurity:** The fund relies on Fidelity’s cybersecurity infrastructure and third-party vendors, making it vulnerable to cyberattacks.
* **Regulatory Changes:** The evolving regulatory landscape for digital assets poses a risk to the fund’s operations.
* **Competition:** The emergence of competing digital assets and smart contract platforms could impact the demand for Ether.
* **51% Attack:** The Ethereum network is vulnerable to a 51% attack, where a malicious actor could gain control of the network and manipulate the blockchain.

Opportunities

* **Growing Investor Interest:** Increasing institutional and retail investor interest in Ether could drive further asset growth.
* **Ethereum Network Development:** Ongoing development and upgrades to the Ethereum network could enhance its utility and value.
* **First-Mover Advantage:** As one of the first Ether-based ETFs, the fund has a potential advantage in attracting investors.

Conclusion and Actionable Insights

The Fidelity Ethereum Fund has demonstrated significant growth in its initial months of operation, reflecting strong investor demand for Ether exposure. However, the fund’s performance is inherently linked to the volatility of Ether, and investors should be aware of the associated risks. The sponsor fee waiver provided a temporary benefit, but the future expense ratio of 0.25% is competitive.

**Overall Assessment:** Hold. The fund is operating as intended, but the inherent risks of Ether and the evolving regulatory environment warrant a cautious approach.

**Recommendations:**

* **Monitor Ether Price Volatility:** Closely track Ether price movements and their impact on the fund’s NAV.
* **Assess Regulatory Developments:** Stay informed about regulatory changes affecting digital assets and their potential impact on the fund.
* **Evaluate Cybersecurity Measures:** Review Fidelity’s cybersecurity protocols and risk management practices.

Final Considerations

This report is based on the information available in the 10-K filing and should not be considered investment advice. Investors should conduct their own due diligence and consult with a financial advisor before making any investment decisions.

Fidelity Ethereum Fund (FETH) Financial Analysis – December 31, 2024

1. Commentary

Fidelity Ethereum Fund (FETH), having commenced operations on July 23, 2024, presents a unique financial picture as a newly established investment vehicle focused on ether. The fund’s net assets totaled $1,572.626 million as of December 31, 2024, entirely invested in ether. During its initial period, the fund experienced a net decrease in net assets resulting from operations of $9.115 million, driven by realized and unrealized losses on its ether holdings. However, capital share transactions, primarily issuances, significantly boosted net assets by $1,581.741 million, offsetting operational losses.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: N/A – The fund reports no gross profit as it primarily deals with investment in ether.

    Industry: Not applicable for this type of fund.

  • Operating Profit Margin: N/A – The fund’s operating expenses were fully waived, resulting in zero net expenses.

    Industry: Not applicable for this type of fund.

  • Net Profit Margin: N/A – The fund experienced a net loss from operations, but this is before capital transactions.

    Industry: Not applicable for this type of fund.

  • Return on Assets (ROA): -0.57% – Calculated as Net Decrease in Net Assets Resulting from Operations ($9.115 million) / Average Total Assets (($1,604.422 million + $0)/2).

    Industry: ROA for crypto funds can vary significantly based on market conditions.

  • Return on Equity (ROE): -0.58% – Calculated as Net Decrease in Net Assets Resulting from Operations ($9.115 million) / Average Net Assets (($1,572.626 million + $0)/2).

    Industry: ROE for crypto funds can vary significantly based on market conditions.

  • Earnings Per Share (EPS) – Basic and Diluted: -0.19 – Calculated as Net Decrease in Net Assets Resulting from Operations ($9.115 million) / Shares Outstanding (47,175,000).

    Industry: EPS is not a standard metric for evaluating fund performance.

Liquidity

  • Current Ratio: 1.00 – Calculated as Total Assets ($1,604.422 million) / Total Liabilities ($31.796 million).

    Industry: A current ratio of 1 is generally considered adequate for a fund.

  • Quick Ratio (Acid-Test Ratio): 1.00 – Calculated as (Total Assets – Inventory) / Total Liabilities. Since the fund’s assets are almost entirely ether, this is essentially the same as the current ratio.

    Industry: A quick ratio of 1 is generally considered adequate for a fund.

  • Cash Ratio: 0.00 – The fund holds no cash.

    Industry: Crypto funds typically hold minimal cash.

Solvency/Leverage

  • Debt-to-Equity Ratio: 0.02 – Calculated as Total Liabilities ($31.796 million) / Total Net Assets ($1,572.626 million).

    Industry: Crypto funds typically have low debt-to-equity ratios.

  • Debt-to-Assets Ratio: 0.02 – Calculated as Total Liabilities ($31.796 million) / Total Assets ($1,604.422 million).

    Industry: Crypto funds typically have low debt-to-assets ratios.

  • Interest Coverage Ratio (Times Interest Earned): N/A – The fund has no interest expense.

    Industry: Not applicable for this type of fund.

Activity/Efficiency

  • Inventory Turnover: N/A – Not applicable as the fund invests in ether, not traditional inventory.

    Industry: Not applicable for this type of fund.

  • Days Sales Outstanding (DSO): N/A – Not applicable for this type of fund.

    Industry: Not applicable for this type of fund.

  • Days Payable Outstanding (DPO): N/A – Not particularly relevant given the nature of the fund’s liabilities.

    Industry: Not applicable for this type of fund.

  • Asset Turnover: 0.006 – Calculated as Net Decrease in Net Assets Resulting from Operations ($9.115 million) / Average Total Assets (($1,604.422 million + $0)/2).

    Industry: Asset turnover is not a primary metric for evaluating fund performance.

Valuation

  • Price-to-Earnings Ratio (P/E): -101.71 – Calculated as Stock Price ($19.33) / EPS (-$0.19).

    Industry: P/E ratio is not a standard metric for evaluating fund performance, especially when earnings are negative.

  • Price-to-Book Ratio (P/B): 0.58 – Calculated as Stock Price ($19.33) / NAV per Share ($33.34).

    Industry: P/B ratios for crypto funds can vary.

  • Price-to-Sales Ratio (P/S): N/A – The fund does not have sales in the traditional sense.

    Industry: Not applicable for this type of fund.

  • Enterprise Value to EBITDA (EV/EBITDA): N/A – The fund has no debt and no EBITDA.

    Industry: Not applicable for this type of fund.

Growth Rates

  • Revenue Growth: N/A – The fund does not have revenue in the traditional sense.

    Industry: Not applicable for this type of fund.

  • Net Income Growth: N/A – Cannot be calculated as there is only one period of data.

    Industry: Not applicable for this type of fund.

  • EPS Growth: N/A – Cannot be calculated as there is only one period of data.

    Industry: Not applicable for this type of fund.

Other Relevant Metrics

  • Sponsor Fee Waiver: The sponsor waived the entire sponsor fee of $644,000. This is a significant factor impacting the fund’s expenses.

  • Total Return at NAV: -4.41% for the period July 23, 2024 to December 31, 2024.

  • Total Return at Market Value: -4.20% for the period July 23, 2024 to December 31, 2024.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️