The Ether Index Trust is being proposed currently. In the making for since 2016, it is still a work in progress. However, this is a hint of good times ahead for cryptocurrency especially Ethereum.
An index fund is a mutual or exchange-traded fund (ETF) designed to follow certain preset rules so that the fund can track a specified basket of underlying investments. A mutual fund is a professionally managed investment fund that pools money from man investors to purchase securities.
The Ether Index Trust will be designed to track Ether.
As an exchange traded fund, it will allow traditional investors to buy into the value of Ether through a traditional exchange. The fund should in principle deliver the same returns as one would expect from direct Ether investments- without the hassle of using any crypto exchange.
The biggest advantage for the Cryptoworld is that it opens Ether to a much larger pool of investors. Think mums and dads, baby boomers, fund managers, institutional investors, penny investors, and anyone who doesn’t have the time nor skills to purchase Ether through a crypto exchange. Not just purchase but then to self manage or store Ether. Anyone who does hold Ether, knows exactly how painful and risky it is to manage your own crypto holdings.
Investors would easily be able to diversify their portfolio and get exposure to crypto – using their favourite exchange, trading platform or broker. Even as someone who holds crypto themselves, this is an attractive solution.
Cshing! Cshing! I hear? well, let’s not make this about price. But yes, this represents strong chance for the price of Ether to increase. Nothing fancy here, just basic supply and demand principles apply here.
Something similar to this already exists for Bitcoin ‘The Bitcoin Investment Trust’. The BIT enables investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping bitcoins.
Australia-based VC firm Future Capital has launched a US$30m global investment fund for bitcoin companies called the Future Capital Bitcoin Fund (FCBF). While Canadian investment firm First Block Capital also launched the country’s first bitcoin trust in July. “The Canadian Bitcoin Trust is an open-ended unit trust that enables investors to get exposure to the price of bitcoin without having to worry about buying and securing bitcoin, which has been a challenge for investors”.
Regulators have previously pushed back such funds, but as evident, they are slowly being approved. We’ll start to see some of the bigger fund managers diversify their portfolios with cryptocurrencies. Goldman Sachs is also looking at best options to do this. According to the Wall Street Journal, Goldman Sachs is “weighing a new trading operation dedicated to bitcoin and other digital currencies, the first blue-chip Wall Street firm preparing to deal directly in this burgeoning yet controversial market”.
Ether is a digital asset (“Digital Asset”) similar to bitcoin that is not issued by any government, bank or central organization. Ether has a value based on the value token of the blockchain of the peer-to-peer Ethereum computer network (the “Ethereum Network”) that hosts the decentralized public transaction ledger, known as the “Blockchain,” on which all ether is recorded. Ether can be transferred among parties via the Internet, without the use of a central administrator or clearing agency. The Ethereum Network software governs the creation of ether and secures and verifies ether transactions. The Ethereum Network software can interpret the Blockchain to determine the exact ether balance, if any, of any public ether address listed in the Blockchain which has taken part in a transaction on the Ethereum Network. An ether private key controls the transfer or “spending” of ether from its associated public ether address. An ether “wallet” is a collection of private keys and their associated public ether addresses.
The Ethereum Network is a recent technological innovation, and the ether that is created, transferred, used and stored by entities and individuals have certain features associated with several types of assets, most notably commodities and currencies.
The Trust is a Delaware statutory trust, organized on [●], 2016, under the Delaware Statutory Trust Act (“DSTA”) and operates pursuant to the Trust Agreement between the Sponsor (as grantor) and the Trustee (the “Trust Agreement”), which sets forth the respective rights and duties of the Sponsor and the Trustee and authorizes the Sponsor, on behalf of the Trust, to enter into a custody agreement (the “Trust Custody Agreement”) with the Custodian. The Custodian serves as custodian to the Trust under the Trust Custody Agreement, which establishes the segregated custody account of the Trust that will be used to control the ether of the Trust on behalf of the Trust (the “Trust Custody Account”).
The Trust will issue common units of beneficial interest, or “Shares.” which represent units of fractional undivided beneficial interest in the net assets of the Trust. The Trust’s assets will consist of ether.
The Trust is not a registered investment company under the Investment Company Act of 1940, as amended, and is not required to register
The Shares provide investors with an opportunity to access the ether market through a traditional brokerage account.
Shares are issued only in one or more blocks of [●] Shares called “Baskets” in exchange for ether. The Trust will issue and redeem the Shares in Baskets only to certain Authorized Participants on an ongoing basis as described in the “Plan of Distribution” section of this Prospectus. On creation, Baskets will be distributed to the Authorized Participants by the Trust in exchange for the delivery to the Trust of the appropriate number of ether (i.e., ether equal in value to the value of the Shares being purchased). On redemption, the Trust will distribute ether equal in value to the value of the Shares being redeemed to the redeeming Authorized Participant in exchange for the delivery to the Trust of one or more Baskets. On each Business Day, the value of each Basket accepted by the Administrator in a creation or redemption transaction will be the same (i.e., each Basket will consist of [●] Shares and the value of the Basket will be equal to the value of [●] Shares at their net asset value per Share on that day). The investment objective of the Trust is for the Shares to track the price of ether, as measured by the EtherIndex Price on each day [EXCHANGE] is open for trading (each a “Business Day”), less the Trust’s liabilities (which include accrued but unpaid fees and expenses). The material terms of the Trust Agreement are discussed in greater detail under the section “Description of the Trust Agreement.”
Individual Shares will not be redeemed by the Trust, but are expected to be listed for trading, subject to notice of issuance, on [EXCHANGE] under the symbol “[TICKER].” Investors may purchase Shares through traditional brokerage accounts. Secondary market purchases and sales of Shares are subject to customary brokerage commissions and changes. Investors should review the terms of their brokerage accounts for applicable charges.
The market price of the Shares may not be identical to the net asset value of the Shares.
A Temporary or Permanent Blockchain “Fork” Could Adversely Affect an Investment in the Shares.
The DAO, a decentralized autonomous organization using the Ethereum Network, was hacked in June 2016, resulting in a loss to that organization of approximately 3.6 million of ether. In response to this loss, the Ethereum community agreed to create a new “hard fork” on the Ethereum Network blockchain which returned the lost ether to The DAO. A hard fork is a change to the underlying Ethereum protocol, which creates new rules for the Ethereum system; all Ethereum clients need to upgrade, or they will be stuck on an incompatible chain.
In creating the hard fork, the intent was to have all users of the Ethereum Network migrate to that new fork, which would result in the ether in the old blockchain held by the DAO hacker being rendered useless. However, a number of users have continued to develop the old blockchain, now referred to as “Ethereum Classic” resulting in separate version of ether now referred to as ether classic (“ETC”). Ether classic is now traded on several Digital Asset exchanges.
At the time of the initial attack on The DAO and the loss of its ether, the market price of ether declined from over $20 to under $13. While the price of ether recovered after that decline, there is no assurance that a future attack would not result in a sustained decline in the market price of ether.
A disruption of the Internet or the Ethereum Network would affect the ability to transfer ether and the value of ether.
The Ethereum Network’s functionality depends on the Internet. A significant disruption in Internet connectivity could disrupt the Ethereum Network’s operations until the disruption is resolved and have an adverse effect on the price of the Shares. In addition, the Ethereum Network has been subjected to a number of denial of service attacks, which led to temporary delays in block creation and in the transfer of ether. While in response to those attacks, an additional “hard fork” was created to increase the cost of certain network functions, the Ethereum Network could be the subject of additional attacks. Any future attacks that impact the ability to transfer ether could have a material adverse effect on the price of ether and the value of an investment in the Shares.
The loss or destruction of a private key required to transfer the Trust’s ether holdings may be irreversible and would adversely affect an investment in the Shares.
Ether can only be transferred with the private key associated with the Ethereum Network public address in which the ether is held. The Trust safeguards and securely stores the private keys associated with the Trust’s Ethereum Network public addresses by engaging the Ether Custodian. To the extent a private key is lost, destroyed, exfiltrated or otherwise compromised and no backup of the private key is accessible, the Ether Custodian will be unable to transfer the Trust’s ether held in the public addresses associated with that private key. Consequently, the ether associated with that public address will effectively be lost, which would adversely affect an investment in the Shares.
The limit on the supply of Ether is uncertain.
Unlike bitcoin, which has a fixed limit of 21,000,000 bitcoin, no limit has been established on the total supply of ether. The initial creation of ether was in connection with a crowd funding transaction in 2014 in which 60,000,000 ether were pre sold. Another 12,000,000 ether were created to the development fund, most of it going to early contributors and developers and the remaining amount to the Ethereum Foundation. All additional ether have been and will be created through the mining process. It has been reported that approximately 9,700,000 million ether have been created to date through the mining process. According to the terms of the 2014 presale, the issuance of ether from mining is capped at 18,000,000 ether per year. However, it is expected that the Ethereum Network will switch from a “proof of work” consensus to a new “proof of stake” consensus algorithm under development, called Casper, that is expected to be more efficient and require less mining subsidy. While the Ethereum Foundation has stated that it is expected that the current maximum is considered a ceiling and the new issuance under Casper will not exceed it (and is expected to be much less), there is no assurance that will be the case.
The creation and exchange of ether are not the sole purposes of the Ethereum Network.
The Ethereum Network is an alternative decentralized ledger protocol with an ideological lineage that contains as much BitTorrent, Java and Freenet as it does ether. It is a general-purpose, global blockchain that can govern both financial and non-financial types of application states. In its essence, the Ethereum Network enables decentralized business logic, also known as “smart contracts”, represented as cryptographic “boxes” that contain value and only unlock it if certain conditions are met. Smart contracts are capable of automatically enforcing the terms of a given agreement among a number of parties. This code can define strict rules and consequences in the same way that a traditional legal document would, stating the obligations, benefits and penalties which may be due to either party in various different circumstances. But unlike a traditional contract it can also take information as an input, process that information through the rules set out in the contract, and take any actions required of it as a result.