Grayscale Ethereum Classic Trust - ETCG stock

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OTC Symbol: ETCG | OTC Tier: OTCQX U.S.

Company Profile

Grayscale Ethereum Classic Trust is a US-based currency fund launched and managed by Grayscale Investments, LLC. It is an investment vehicle that grants investors access and exposure to the shift in the price of Ethereum Classic in a traditional security form without typically buying, storing, and safekeeping the Ethereum Classic. The Trust holds ETC digital assets created and transferred through peer-to-peer Ethereum Classic Network operations. Its main investment objective is to ensure the shares (based on ETC per Share) reflect the true value of ETC held by the Trust. The held ETC value is generated by reference to the Index Price minus the expenses and other liabilities held by the Trust. The Trust trades baskets for ETC, which are transferred as a consideration in connection with the creations. The company also engages in administrative and custodial procedures vital for the completion of activities as per the provisions of the custodian agreement, trust agreement, license agreement, and participant agreement. The company was formed in August 2016 under Delaware statutory laws. It was formerly known as Ethereum Classic Investment Trust and changed its name to Grayscale Ethereum Classic Trust on January 11, 2019. The company’s shares are listed on OTCQX under the ETCG ticker symbol, and the CUSIP number for its Shares is 38963Q107.

Corporate Operations

Grayscale Ethereum Classic Trust is passively invested in ETC and presents investors with a hands-off titled and auditable investment opportunity through a traditional investment instrument. The company’s shares are listed under the investor’s name, laying a smooth path for financial and tax advisors and easy transfer of the shares to an individual’s beneficiaries as required by estate laws. Marcum LLP annually audits Grayscale Ethereum Classic Trust’s financial statements. The firm’s assets are also eligible for holding in certain IRA, IRA Roth, and other specified brokerage and investment accounts.

As a decentralized digital asset network, the Fund is only a single constituent of the network, which is made up of numerous stakeholders, including core developers of the Ethereum Central developers, businesses, services, users, miners, and others. Grayscale Investments, LLC sponsors and oversees administration roles of the Trust (Sponsor), Delaware Trust Company is the Trust’s trustee (Trustee), Continental Stock Transfer & Trust Company acts as the Trust’s transfer agent (Transfer Agent), and Coinbase Custody Trust Company, LLC is the custodian of the Trust. The Trust only issues shares in single or multiple blocks of 100 shares (Basket) periodically to authorized participants in exchange for ETC. At this time, the Trust does not redeem the shares when the sponsor is off the redemption program for the shares. Due to several factors such as fraud, security breaches, and failure, among others resulting from the absence of a redemption program, there can be little assurance that the share values will accurately mirror the Trust's ETC value, less its expenses and other liabilities. The shares may trade at a substantial discount or premium over the Trust's ETC value, less its expenses and other liabilities. The Fund’s main investment objective is to ensure the value of the shares, based on ETC per share, reflects the value of ETC under the Trust. The objective is yet to be achieved, though the shares listed on OTCQX have traded at substantial premiums and discounts.

Business Evolution

On January 17, 2016, an unidentified hacker cracked a smart contract code used to build a distributed autonomous organization, DAO, and siphoned roughly $60 million worth of ETH into a designated wallet address. Consequently, a new version of the Ethereum blockchain called Ethereum was proposed on January 20, 2016, which would wipe the theft record and restore the stolen tokens to their original holders. The previous Ethereum profile was rebranded to Ethereum Classic and its original token to ETC. The process preserved the foundational frameworks of decentralized governance and mobility. ETC and ETH are quite similar, but there are significant differences between the Ethereum Network and the Ethereum Classic Network. The differences include the total network supply, consensus mechanism, and monetary policy. Since the network split, Ethereum Classic’s market value has been averaging 3.8% of Ethereum’s. As of December 31, 2022, the Trust had approximately 8.5% of the ETC in circulation.

Critical Company and Industry Developments

company decided to create Grayscale Digital Infrastructure Opportunities LLC (GDIO), which would be used to purchase Bitcoin mining equipment. The subsidiary would be accessible to accredited investors like family offices and hedge funds at a minimum of $25,000 investment. GDIO would buy computer rigs employed in Bitcoin mining and eventually generate profits from the sale of accumulated Bitcoin. Funding of the three-to-five-year investment projected was scheduled for the fourth quarter.

The company published its third-quarter financial and operational results for the period ending September 30, 2022, on November 4, 2022. Highlights of its financial performance include:

• Net realized, and unrealized gain on ETC investment was $157,652, inclusive of $1,719 realized gain on the transfer of ETC to pay the Trust’s Sponsor’s Fee and $155,933 net change of unrealized ETC investment change. The net gains were scooped from price appreciation of ETC from $14.50/ ETC as of June 30, 2022, to $27.63/ ETC as of September 30, 2022
• The company recorded a $155,366 increase in net assets resulting from operations
• Net assets increased to $329,240, an 89% increase over the three months
• Net realized, and unrealized loss on ETC investment was $110,752, inclusive of $4,442 realized gain on the transfer of ETC to pay the Sponsor’s Fee and $115,194 net change in unrealized depreciation on ETC investment for the same period in 2021.

The company filed a lawsuit against the US Securities and Exchange Commission in June 2022 after the regulator turned down Grayscale’s bid to convert its crypto investment vehicle into a Fund quoted on Wall Street exchanges. Grayscale had applied to become an exchange-traded fund. The SEC, however, rejected the company’s request in the account that the Trust did not meet consumer protection requirements, which included designated measures to ‘prevent fraudulent and manipulative acts and practices.’ The rejection news led to a 3.4% drop in Bitcoin prices to as low as $19,400. Converting the Trust into ETF would effectively improve investors’ ease of redeeming their holdings and stabilize the price of Bitcoin.