Ether (ETH) is the native cryptocurrency of Ethereum, a decentralized, open-source blockchain platform that enables smart contracts and decentralized applications (DApps). To operate, Ethereum requires computational resources, networking infrastructure, and energy, which are compensated through ETH payments.

Users pay transaction fees (called "gas" fees) in ETH to execute transactions and smart contracts, incentivizing validators to secure the network.

While ETH is the foundational currency of Ethereum, the platform also supports a diverse ecosystem of other tokens, which developers can create for various use cases. These tokens coexist within Ethereum’s broader cryptocurrency network, though ETH remains its core asset, essential for fueling transactions and operations.

A Ether Spot ETF (Exchange-Traded Fund) is an exchange-traded fund listed on traditional stock exchanges. An ETF is issued and managed by professional fund managers, who directly hold actual Ether spot assets. Before deducting fees and expenses, the ETF aims to provide investment returns closely linked to the Ether index, according to its investment objectives and strategies.

By purchasing shares of a Ether Spot ETF, investors can indirectly hold Ether without having to buy, store, or manage physical Ether themselves.

The main features of an Ether Spot ETF include:

• Direct Ownership of Bitcoin: The fund’s asset portfolio includes actual bitcoin, and its price is closely tied to the bitcoin market price.

• Trading Convenience: Investors can buy and sell ETF shares on traditional stock exchanges through brokerage accounts, just like trading stocks, without needing to use a cryptocurrency wallet or exchange.

• Regulatory Compliance: Ether Spot ETFs operate within a regulatory framework, providing legal protection and transparency for investors.

• Lower Barriers and Risk: Investors avoid risks associated with directly holding Ether, such as managing private keys, theft risk, and exchange security risks.

• Good Liquidity: ETF shares can be freely traded during market hours, and typically offer better liquidity compared to certain cryptocurrency exchanges.

In short, a Ether Spot ETF is a regulated investment tool that allows investors to participate in bitcoin price movements easily and securely through traditional financial markets, serving as an important bridge between traditional finance and the cryptocurrency market.

What is Staking?

Staking refers to users locking their cryptocurrency holdings in a blockchain network to participate in its operation and transaction validation process, thereby earning rewards. It provides a way to generate passive income, similar to the concept of earning interest.

Staking typically occurs on blockchains that use the Proof of Stake (PoS) consensus mechanism can enhance transaction speed, efficiency, and cost-effectiveness in blockchain networks. PoS involves a series of processes including staking, validation, and creating new blocks. Users lock up a certain amount of cryptocurrency in the network as collateral to qualify as validators (or validator nodes). The more tokens a user stakes, the higher their chance of being selected to validate the next block. When a validator successfully validates transactions and adds a new block, they receive block rewards, which are distributed proportionally to staking participants.

Generally, the more coins staked and the longer the staking period, the greater the rewards.

Staking can be done individually or through a staking pool, where multiple participants aggregate their assets to lower entry barriers and share rewards.

Can Hong Kong-Listed Ethereum ETFs Participate in Staking?

On April 7, 2025, Hong Kong’s Securities and Futures Commission (SFC) amended its rules to allow licensed virtual asset trading platforms and funds to provide cryptocurrency staking services. This means that Hong Kong-listed Ethereum ETFs can now legally participate in staking, allowing investors to earn staking rewards through ETFs. This also allows participants to contribute directly to strengthening the blockchain's resilience while improving its capacity to process transactions.

Marking a significant step forward in Hong Kong’s regulatory innovation and ecosystem development for crypto assets.

Can Bitcoin Be Staked?

Bitcoin itself does not support staking because it operates on the Proof of Work (PoW) consensus mechanism rather than Proof of Stake (PoS), which significantly relies on computational power. Only cryptocurrencies using PoS can be staked.

What Are the Risks of Staking?

While staking can generate passive income and support blockchain network security, it also carries several risks, including:

1. Price Volatility RiskCryptocurrency’s prices are highly volatile. Even if staking offers high annualized returns, a sharp drop in token value could still result in an overall investment loss.

2. Liquidity Risk
   Staked assets are often locked for a period, during which they cannot be freely transferred or sold. If the market plunges suddenly, investors may not be able to exit in time to limit losses.

3. Slashing Risk
   In PoS mechanism, if a staker or validator behaves improperly (e.g., going offline or maliciousoperations), they may face slashing penalties, losing part or all of their staked assets.

4. Technical Risks
   Smart contract bugs, software errors, or blockchain security issues could lead to frozen, lost, or unrecoverable funds.

While staking offers passive income and supports blockchain operations, investors should carefully assess market volatility, liquidity constraints, technical, and platform security risks before participating.

Disclaimers

Investing involves risks, including the potential loss of principal. Investments in emerging markets are subject to additional risks, such as higher market volatility and lower trading liquidity, which may lead to greater losses compared to investments in developed markets. Please carefully consider the fund’s investment objectives, risk factors, fees, and expenses before investing. These and other details are outlined in the fund’s prospectus, which should be reviewed before making an investment decision.

MicroBit Capital Management Limited is not operated, endorsed, issued, sold, or promoted by index providers (applicable to ETFs funds). For more details on index providers, including disclaimers, please refer to the relevant offering documents of MicroBit Capital Management Limited

Sources: Fund performance and index data (if applicable) are provided by MicroBit Capital Management Limited and relevant index providers. This document is prepared by MicroBit Capital Management Limited and has not been reviewed by the Securities and Futures Commission.

A crypto spot ETF differs from a crypto futures ETF primarily in how they obtain exposure to the underlying cryptocurrency.

Underlying Asset

A crypto spot ETF is an exchange-traded fund that aims to provide investment results closely corresponding to the price of the related cryptocurrency by investing in the underlying asset, before fees and expenses. This type of ETF allows investors to gain exposure to the price movements of the underlying cryptocurrency without directly purchasing or managing the cryptocurrency themselves.

A crypto futures ETF does not hold the related cryptocurrency directly. Instead, it invests in crypto futures contracts, which are agreements to buy or sell the cryptocurrency at a set price on a future date. This provides indirect exposure based on the futures market price rather than the current price of the related cryptocurrency.

Price Tracking

Spot ETFs track the spot price of Bitcoin closely, so their value moves nearly in tandem with the crypto market price.

Futures ETFs may not track the price of the related cryptocurrency as accurately due to factors like contract rollovers, contango (futures prices higher than spot prices), or backwardation (futures prices lower than spot). These dynamics can cause tracking errors and additional costs.

Ownership and Custody

With spot ETFs, investors effectively own a share of actual cryptocurrency held in custody by the fund, storing in regulated and insured storage.

Futures ETFs usually do not involve ownership of cryptocurrency and avoid risks related to storing the asset (such as hacking), since they only hold derivative contracts.

Costs and Fees

Futures ETFs may incur higher transaction costs, compared to Spot ETFs, from continuously rolling over expiring contracts and may experience inefficiencies that impact returns.

Spot ETFs, however, do not face the costs associated with rolling futures contracts.

In summary, spot ETFs provide direct, straightforward exposure to actual cryptocurrency, reflecting its spot market price, whereas futures ETFs offer indirect exposure through derivative contracts and may experience price tracking deviations and additional costs.

Disclaimers

This material is produced by MicroBit Capital Management Limited ("MicroBit") and is intended for Hong Kong investors only. All content is for general information purposes and does not constitute an offer, solicitation, or recommendation to buy or sell any financial instruments, nor is it legal, financial, tax, or investment advice.

Investments involve risks. The value of investments can go up or down, and investors may lose some or all of their invested capital. Past performance is not a guarantee of future results. You should carefully consider your investment objectives and risk tolerance and seek advice from a professional financial advisor before making any investment decisions.

MicroBit does not guarantee the accuracy, timeliness, completeness, or reliability of the information provided. All materials are presented “as is”, without any warranties of any kind, whether express or implied, including but not limited to merchantability, fitness for a particular purpose, or non-infringement.

Securities and Futures Commission (SFC) authorization is not a recommendation or endorsement of a scheme, nor does it guarantee its commercial merits or performance. This material has not been reviewed by the SFC. Copyright © 2025 MicroBit Capital Management Limited. All rights reserved.