Grayscale Ethereum Classic Trust (ETC) Annual Report: Your Essential Investment Overview

Gain a clear understanding of the Grayscale Ethereum Classic Trust (ETC)'s performance and operations for the fiscal year ending December 31, 2025. This report provides essential information to help you evaluate this unique investment and its role in your portfolio.

Business Overview: What is Grayscale Ethereum Classic Trust (ETC)?

The Grayscale Ethereum Classic Trust (ETC) offers investors exposure to Ethereum Classic (ETC), a digital asset, without the complexities of directly buying, storing, and securing it. As a passive investment vehicle, its straightforward objective is to reflect ETC's value, minus its operating expenses. The Trust does not engage in active trading, leverage, or derivatives; it simply holds Ethereum Classic.

Ethereum Classic itself originated from a "hard fork"—a permanent split in the blockchain's history—of the original Ethereum network in 2016. It upholds a philosophy of immutability ("code is law") and aims for a stable total supply by gradually reducing new coin creation. The Trust's investment strategy is purely passive: it holds Ethereum Classic and mirrors its price performance, less expenses. It does not seek to generate income, engage in active trading, or employ complex financial instruments. Its success is directly tied to Ethereum Classic's price movements.

Selected Financial Data and Performance Highlights for Fiscal Year 2025

For the fiscal year ending December 31, 2025, we present key financial data and performance highlights:

• ETC Holdings: The Trust held approximately 7% of all Ethereum Classic coins in circulation as of December 31, 2025, making it a significant holder within the ETC ecosystem. However, this holding does not grant the Trust any governance rights or influence over the decentralized Ethereum Classic network's development.
• Shares Outstanding (Subsequent Event): A subsequent event reported 13.99 million shares outstanding by March 6, 2026.
• Market Price vs. Net Asset Value (NAV): ETCG shares trade on over-the-counter markets. Unlike traditional ETFs, the Trust lacks a redemption program, meaning investors cannot directly exchange shares for the underlying ETC. This structural difference allows ETCG's market price to significantly deviate from its Net Asset Value (NAV) per share (the value of ETC held per share). Throughout 2025, ETCG shares traded at an average discount to NAV, fluctuating from a premium to a discount. This indicates investors often bought shares for less than the underlying ETC's value, or, at times, paid more.

Management's Discussion and Analysis of Financial Condition and Results of Operations

This section provides context for the Trust's financial condition and results of operations.

Results of Operations: The Trust's financial performance primarily reflects changes in Ethereum Classic's market price, net of the Sponsor Fee. As a passive investment vehicle, the Trust does not generate traditional revenue from sales of goods or services and does not aim for conventional profit. Shareholder "profitability" is measured by the appreciation of its underlying assets and the market price of its shares.

For the fiscal year ended December 31, 2025, the Trust's net assets primarily reflected the change in the fair value of its Ethereum Classic holdings. The Sponsor Fee, deducted daily from the Trust's assets, directly reduces the Trust's Net Asset Value (NAV) over time.

Significant fluctuations in ETCG shares' premium or discount relative to their NAV largely caused divergence in market price performance. Without a redemption mechanism, market supply and demand for ETCG shares, rather than arbitrage, primarily determine the market price.

Operational Overview & Key Developments: Effective January 1, 2025, Grayscale Investments Sponsors, LLC (GSIS) became the Trust's sponsor, succeeding Grayscale Investments, LLC. This internal restructuring within the Grayscale family did not alter ultimate management or control. GSIS continues to manage the Trust's operations, including ETC safekeeping and administrative functions.

No Redemption Program - A Key Investor Consideration: The absence of a redemption mechanism is crucial for investors to understand. Because investors cannot directly create or redeem shares with the Trust, secondary market supply and demand for ETCG shares dictate its price. This often leads to significant premiums or discounts relative to ETC's underlying value. Consequently, investors might buy at a premium and sell at a discount, incurring losses even if ETC's price remains stable or rises.

Liquidity and Capital Resources: The Trust holds no debt. Its primary assets are solely Ethereum Classic. The Sponsor pays the Trust's expenses, primarily the Sponsor Fee, from the Trust's assets (either by selling ETC or delivering ETC to the Sponsor). Thus, the Trust's liquidity directly depends on its Ethereum Classic holdings and its ability to convert a portion to cover expenses. The Trust holds sufficient ETC to cover anticipated operational expenses. It does not engage in activities requiring significant working capital or capital expenditures.

Significant Risk Factors for Investors

Investing in Grayscale Ethereum Classic Trust (ETC) carries substantial risks, especially due to its digital asset exposure. Investors should carefully consider the following:

• Extreme Volatility of Ethereum Classic (ETC): ETC's price is highly volatile and can fluctuate dramatically. Market sentiment, regulatory news, technological developments, and broader cryptocurrency trends can cause rapid, significant price changes, potentially leading to the loss of all or substantially all of your investment.
• Trust Shares May Trade at a Significant Premium or Discount to NAV: As previously explained, the lack of a redemption mechanism means ETCG's market price can diverge significantly from its NAV. Investors who buy at a premium risk substantial losses if the premium narrows or turns into a discount, even if ETC's spot price remains constant or rises. Conversely, a discount could persist or widen.
• Regulatory Uncertainty and Potential Adverse Changes: The regulatory landscape for digital assets is still evolving and highly uncertain. New laws, regulations, or interpretations by government bodies (e.g., SEC, CFTC, IRS) might:
  • Restrict ETC's use or trading.
  • Impose new taxes or reporting requirements on the Trust or its shareholders.
  • Require the Trust to alter its operations or even terminate.
  • "Security" Classification Risk: If U.S. regulators classify ETC as a "security," severe negative consequences could follow. These include potential delisting, regulatory enforcement actions, a significant adverse impact on its value, and the Trust's ability to operate, potentially leading to termination.
• Cybersecurity and Custody Risks:
  • Custody Risk: The Trust relies on a third-party custodian (typically Coinbase Custody Trust Company, LLC for Grayscale products) to securely hold its ETC. Despite robust security measures, any breach, hack, or operational failure at the custodian could result in the loss or theft of the Trust's assets.
  • Network Security: The Ethereum Classic blockchain itself, or the digital asset trading platforms for ETC, could be vulnerable to hacks, cyberattacks, or other security breaches, impacting ETC's value.
• Dependence on Third-Party Service Providers: The Trust relies on various third parties, including the Sponsor, custodian, transfer agent, and administrator. Failure, insolvency, or operational issues of any of these parties could disrupt the Trust's operations and negatively impact its value.
• Competition and Technological Obsolescence: The digital asset market is highly competitive. New digital assets or technological advancements could emerge, diminishing ETC's relevance, adoption, or value.
• Hard Fork Risk: As ETC itself resulted from a hard fork, future hard forks of the Ethereum Classic blockchain could occur. Such events might create new digital assets, cause confusion, or negatively impact the value of ETC held by the Trust.
• Market Manipulation and Liquidity Risks: Digital asset markets can be susceptible to manipulation. ETC's liquidity can vary significantly, especially during high volatility, making it difficult to buy or sell large quantities without impacting its price.
• Conflicts of Interest: The Sponsor and its affiliates manage other digital asset products and have various business interests. These could, at times, create conflicts with the best interests of the Trust and its shareholders.

Competitive Position

The Grayscale Ethereum Classic Trust operates in a competitive landscape for digital asset exposure. The Trust's primary competition comes from:

• Direct Ownership of Ethereum Classic: Investors can directly purchase, store, and secure ETC through various digital asset exchanges and wallets. This offers direct control but involves greater technical complexity and security responsibilities.
• Other Digital Asset Investment Products: Other trusts, funds, or exchange-traded products (ETPs) may offer exposure to Ethereum Classic or other digital assets. These products often feature different fee structures, redemption mechanisms (if any), and regulatory statuses.
• Derivatives and Futures Markets: Some investors gain exposure to ETC price movements through futures contracts or other derivative instruments, which involve different risk profiles and leverage.

The Trust differentiates itself by offering a regulated, publicly traded security. This allows investors to gain ETC exposure through traditional brokerage accounts, avoiding the complexities of direct digital asset management. However, its lack of a redemption mechanism, which can lead to significant premiums or discounts to NAV, is a key differentiator from traditional ETFs and a critical factor in its competitive standing.

Future Outlook and Strategy

The Grayscale Ethereum Classic Trust maintains its passive investment objective: to hold Ethereum Classic and reflect its price performance, net of expenses. The Sponsor continues to manage the Trust according to its governing documents and applicable regulations, providing a transparent and accessible investment vehicle for ETC.

The future value of an investment in the Trust primarily depends on several external factors:

• Performance of Ethereum Classic: ETC's underlying price movements will be the most significant determinant of the Trust's asset value.
• Evolving Regulatory Landscape: Continued regulatory developments, particularly in the U.S., will critically impact the digital asset market and the Trust's operations. Potential changes in classification, taxation, or trading rules could significantly affect the Trust.
• Dynamics of the Secondary Market for ETCG Shares: Supply and demand for ETCG shares in the over-the-counter market will continue to influence the premium or discount to NAV, directly impacting shareholder returns.

The Trust does not provide forward-looking financial guidance, given its passive nature and dependence on external market forces. The Sponsor will continue monitoring the digital asset ecosystem and regulatory environment to ensure the Trust operates in compliance and serves its stated objective.