Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

This information should be read in conjunction with the financial statements and notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (the "Report"). This Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. The matters discussed throughout this Report that are not historical facts are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other comparable terminology. All statements (other than statements of historical fact) included in this Report that address activities, events or developments that will or may occur in the future, including such matters as movements in the digital asset markets, operations of Invesco Galaxy Ethereum ETF (the "Trust"), plans and references by Invesco Capital Management LLC (the "Sponsor") to the Trust's future success and other similar matters, are forward-looking statements. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses the Sponsor has made based on its perception of historical trends, technology developments regarding the use of ether and other digital assets, including the systems used by the Sponsor and Coinbase Custody Trust Company, LLC, the Trust's Ethereum custodian (the "Ethereum Custodian") in their provision of services to the Trust, current conditions and expected future developments, as well as other factors appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor's expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed in this Report, and the risks described in Part I, Item 1A. "Risk Factors" of the Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, together with the modified risk factor included in Item 1A of this Report, and in other SEC filings by the Trust, as well as general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other economic and political developments. Consequently, all the forward-looking statements made in this Report are qualified by these cautionary statements, and there can be no assurance that actual results or developments the Sponsor anticipates will be realized or, even if substantially realized, that they will result in the expected consequences to, or have the expected effects on, the Trust's operations or the value of its Shares. None of the Trust, the Sponsor, or the Trustee or their respective affiliates is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in the Sponsor's expectations or predictions.

Overview/Introduction

The Invesco Galaxy Ethereum ETF (the "Trust") is a Delaware statutory trust that was formed on September 27, 2023. The Trust continuously issues common shares representing fractional undivided beneficial interest in and ownership of the Trust ("Shares"). The Trust operates pursuant to its Second Amended and Restated Declaration of Trust and Trust Agreement, dated as of June 21, 2024 (the "Trust Agreement"). The Shares began trading on the Cboe BZX Exchange, Inc. (the "Exchange") under the ticker symbol "QETH" on July 23, 2024. The Trust offers Shares only to certain eligible financial institutions ("Authorized Participants") in one or more blocks of 5,000 Shares ("Creation Baskets") based on the quantity of ether attributable to each Share of the Trust.

The following discussion and analysis was prepared to supplement information contained in the accompanying financial statements and is intended to explain certain items regarding the Trust's financial condition as of September 30, 2025, and its results of operations for the three and nine months ended September 30, 2025 and the period July 23, 2024 to September 30, 2024. It should be read in conjunction with the unaudited financial statements and related notes thereto contained in this Report.

Investment Objective

The investment objective of the Trust is for the Shares to reflect the performance of the spot price of ether as measured using the Lukka Prime Ethereum Reference Rate (the "Benchmark") less the Trust's expenses and other liabilities. The Shares are intended to provide institutional and retail investors with a simple, cost-effective means of gaining investment benefits similar to those of holding ether.

Determination of Net Asset Value

The Administrator calculates, and the Sponsor publishes, the Trust's Net Asset Value ("NAV") once each business day. To calculate the NAV, the Administrator totals the current market value of ether in the Trust and any other assets, and subtracts any liabilities including accrued but unpaid expenses. The Trust's NAV is an amount denominated in U.S. dollars.

The Administrator also determines the NAV per Share, which equals the NAV of the Trust divided by the number of outstanding Shares. The NAV of the Trust and the NAV per Share are published by the Sponsor on each day that the Exchange is open for regular trading and are posted on the Trust's website, www.invesco.com/QETH.

Valuation of Ether

The Trust applies FASB ASC Topic 820, Fair Value Measurement, in the valuation of ether held by the Trust and for financial statement purposes. The fair market value price for ether reflects the price that would be received for ether in a current sale, which assumes an orderly transaction between market participants on the measurement date of ether on its "principal market," generally, the most advantageous market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. The Trust determines its principal market (or in the absence of a principal market the most advantageous market) on a periodic basis to determine which market is its Principal Market for the purpose of calculating fair value for the creation of quarterly and annual financial statements. Issuer-specific events, market trends, bid/asked quotes of brokers and information providers and other data may be reviewed in the course of making a good faith determination of a security's fair value.

Liquidity and Capital Resources

The Sponsor is not aware of any known trends, demands, commitments, events or uncertainties that will result in, or are reasonably likely to result in, material changes to the Trust's liquidity and capital resources needs.

The Trust pays the Sponsor a unified fee of 0.25% per annum (the "Sponsor Fee") as compensation for services performed under the Trust Agreement. The Trust's only ordinary recurring expense is the Sponsor Fee. The Sponsor Fee is accrued daily and paid monthly in arrears in U.S. dollars, and is calculated by Bank of New York Mellon (the "Administrator"). The Administrator calculates the Sponsor Fee on a daily basis by applying the 0.25% annualized rate to the Trust's total net assets.

Except as noted below, the Sponsor has agreed to pay all of the Trust's ordinary expenses out of the Sponsor's unified fee, including, but not limited to, the Trustee's fees, the fees of The Bank of New York Mellon (for its services as the Administrator, Transfer Agent, and Cash Custodian), the fees of the Ether Custodian, the fees of the Execution Agent, Exchange listing fees, SEC registration fees, printing and mailing costs, legal costs and audit fees. The Sponsor also paid the costs of the Trust's organization.

The Trust may incur certain extraordinary expenses that are not assumed by the Sponsor. These include, but are not limited to, taxes and governmental charges, any applicable brokerage commissions, financing fees, Ethereum network fees and similar transaction fees, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders (including, for example, in connection with any fork of the Ethereum blockchain), any indemnification of the Sponsor, Cash Custodian, Ethereum Custodian, Administrator or other agents, service providers or counterparties of the Trust and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters.

To cover the Sponsor Fee, and extraordinary expenses not assumed by the Sponsor, the Sponsor or its delegate will cause the Trust (or its delegate) to instruct Galaxy Digital Funds LLC (the "Execution Agent") to convert ether held by the Trust into U.S. dollars. The Execution Agent will seek to sell ether at approximately the price at which it is valued by the Trust and in the smallest amounts required to permit such payments as they become due, with the intention of minimizing the Trust's holdings of assets other than ether. Accordingly, the amount of ether to be sold may vary from time to time depending on the level of the Trust's expenses and liabilities and the market price of ether. The NAV of the Trust and the number of ether represented by a Share will decline each time the Trust accrues the Sponsor Fee or any Trust expenses not assumed by the Sponsor. The Trust is not responsible for paying any costs associated with the transfer of ether to or from the Trust in connection with paying the Sponsor Fee or in connection with creation and redemption transactions.

The Trust has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Trust's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to Shareholders.

Cash Flows

A primary cash flow activity of the Trust is to raise capital from Authorized Participants through the issuance of Shares. This cash is used to invest in ether.

As of the date of this Report, each of ABN AMRO Clearing Chicago LLC, BNY Mellon Capital Markets, LLC, Citadel Securities LLC, Goldman Sachs & Co., Jane Street Capital LLC, Jefferies LLC, JP Morgan Securities Inc., Macquarie Capital (USA) Inc. and Virtu Americas LLC has executed a Participant Agreement and are the only Authorized Participants.

Operating Activities

Net cash flow provided by (used in) operating activities was $(7.2) million and $(23.9) million for the nine months ended September 30, 2025 and the period June 17, 2024 to September 30, 2024, respectively. During the nine months ended September 30, 2025, $33.4 million was paid to purchase ether and $26.2 million was received from sales of ether for redemptions. During the period June 17, 2024 to September 30, 2024, $23.9 million was paid to purchase ether and $0 million was received from sales of ether for redemptions.

Financing Activities

The Trust's net cash flow provided by (used in) financing activities was $7.2 million and $23.9 million during the nine months ended September 30, 2025 and the period June 17, 2024 to September 30, 2024, respectively. This included $33.4 million and $24.0 million from Shares purchased by Authorized Participants and $26.2 million and $0.1 million from Shares redeemed by Authorized Participants during the nine months ended September 30, 2025 and the period June 17, 2024 to September 30, 2024, respectively.

Results of Operations

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND FOR THE PERIOD JULY 23, 2024 TO SEPTEMBER 30, 2024

The following graph illustrates the percentage changes in (i) the market price of the Shares (as reflected by the line "Market"), (ii) the Trust's NAV (as reflected by the line "NAV"), and (iii) the closing levels of the Benchmark (as reflected by the line "Lukka Prime Reference Rate (USD)"). There can be no assurance that the price of the Shares or the Trust's NAV will exceed the Benchmark levels.

No representation is being made that the Benchmark will or is likely to achieve closing levels consistent with or similar to those set forth herein.

COMPARISON OF MARKET, NAV AND LUKKA PRIME ETHEREUM REFERENCE RATE (USD)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND FOR THE PERIOD JULY 23, 2024 TO SEPTEMBER 30, 2024

NEITHER THE PAST PERFORMANCE OF THE TRUST NOR THE PRIOR BENCHMARK LEVELS AND CHANGES,

POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE TRUST'S FUTURE PERFORMANCE.

NEITHER THE PAST PERFORMANCE OF THE TRUST NOR THE PRIOR BENCHMARK LEVELS AND CHANGES,

POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE TRUST'S FUTURE PERFORMANCE.

NEITHER THE PAST PERFORMANCE OF THE TRUST NOR THE PRIOR BENCHMARK LEVELS AND CHANGES,

POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE TRUST'S FUTURE PERFORMANCE.

Trust Share Price Performance

For the three months ended September 30, 2025, the Exchange market value of each Share increased from $25.13 per Share to $41.48 per Share. The Share price low and high for the three months ended September 30, 2025 and related change from the Share

price on June 30, 2025 was as follows: Shares traded at a low of $23.98 per Share (-4.58%) on July 1, 2025, and a high of $48.23 per Share (+91.92%) on August 22, 2025. The total return for the Trust on a market value basis was +65.06%.

Ethereum was a standout in the third quarter of 2025, rallying by over 65%, far outpacing bitcoin's 7% gain. Crypto broadly benefited from supportive regulatory developments, particularly the passage of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which solidified the regulation of stablecoins and put Ethereum at the forefront given it is the leading platform for stablecoins. Corporate launches of new layer-1 networks, President Trump's executive order permitting retirement accounts to hold digital assets, and a more positive macroeconomic backdrop leading into the September Federal Reserve (Fed) rate cut also provided optimism for digital assets. US exchange-traded product ("ETP") inflows also continued to pick up.

For the nine months ended September 30, 2025, the Exchange market value of each Share increased from $33.39 per Share to $41.48 per Share. The Share price low and high for the nine months ended September 30, 2025 and related change from the Share price on December 31, 2024 was as follows: Shares traded at a low of $14.60 per Share (-56.27%) on April 8, 2025, and a high of $48.23 per Share (+44.44%) on August 22, 2025. The total return for the Trust on a market value basis was +24.23%.

Ethereum posted positive results of over 25% in the first three quarters of 2025. While it experienced sharp losses in the first quarter of 2025 of over 45% due to deteriorating macroeconomics and a broad selloff in digital assets, as well as the ByBit hack feeding negative sentiment on crypto, prices rebounded strongly in the second and third quarters. Growing institutional demand and ETP inflows amid improving risk appetite and the resumption of Fed easing drove positive momentum. The Pectra upgrade in the second quarter of 2025 also significantly improved investor confidence in the Ethereum network. Lastly, the US regulatory environment was a tailwind, particularly in July when the GENIUS Act was adopted, establishing a federal regulatory regime for stablecoins and Ethereum is the leading blockchain platform for stablecoins.

For the period July 23, 2024 (commencement of trading) to September 30, 2024, the Exchange market value of each Share decreased from $34.60 per Share to $25.94 per Share. The Share price low and high for the period ended September 30, 2024 and related change from the Share price on July 23, 2024 was as follows: Shares traded at a low of $22.21 per Share (-35.82%) on September 6, 2024, and a high of $34.60 per Share (+0.00%) on July 23, 2024. The total return for the Trust on a market value basis was -25.03%.

Since the Trust's launch on July 23, 2024, Ethereum has been pressured by broader risk-off moves and generally lackluster ETP demand. The U.S. equity market sell-off to end July, reignited hard landing concerns in the U.S., the Chinese economic overhang, and rising geopolitical tensions in the Middle East all played a role, though the start of the Federal Reserve's easing cycle in September 2024 was a positive catalyst. Another influencing factor was market expectations for a potential second term as president by former President Trump, especially prior to Vice President Harris joining the presidential race in August. In this respect, former President Trump was generally viewed as more "pro-crypto" and could potentially seek relaxed regulations and more innovation-focused projects.

Trust Share Net Asset Performance

For the three months ended September 30, 2025, the NAV of each Share increased from $25.10 per Share to $41.49 per Share. The rising price of ether during the three months ended September 30, 2025 contributed to an overall 65.39% increase in the level of the Benchmark. The total return for the Trust on a NAV basis was +65.30%.

Net income (loss) for the three months ended September 30, 2025 was $14.1 million, primarily resulting from net realized gain (loss) of $0.4 million and net change in unrealized gain (loss) of $13.7 million.

For the nine months ended September 30, 2025, the NAV of each Share increased from $33.37 per Share to $41.49 per Share. The rising price of ether during the nine months ended September 30, 2025 contributed to an overall 24.58% increase in the level of the Benchmark. The total return for the Trust on a NAV basis was +24.33%.

Net income (loss) for the nine months ended September 30, 2025 was $8.2 million, primarily resulting from net realized gain (loss) of $(0.4) million and net change in unrealized gain (loss) of $8.7 million.

For the period July 23, 2024 (Commencement of Trading) to September 30, 2024, the NAV of each Share decreased from $34.60 per Share to $25.93 per Share. Falling price for ether during the period ended September 30, 2024 contributed to an overall 25.01% decrease in the level of the Benchmark. The total return for the Trust on a NAV basis was -25.06%.

Net income (loss) for the period ended September 30, 2024 was $(3.5) million, primarily resulting from net change in unrealized gain (loss) of $(3.5) million.

On June 17, 2024, the Trust was seeded with $100,000 through the sale of 4,000 Shares ("Initial Seed Shares") at a per-Share price of $25.00 by the Trust to Invesco Ltd. Through June 30, 2024, the Trust had no operations other than those related to its organization and registration and the sale of the Initial Seed Shares.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Sponsor to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period covered by this report. A description of the valuation of ether, a critical accounting policy that the Trust believes is important to understanding its results of operations and financial position, is provided in the section entitled "Valuation of Ether," above. In addition, please refer to Note 2 to the financial statements of the Trust for further discussion of the Trust's accounting policies and Part II, Item 7 - "Management's Discussions and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in the Annual Report on Form 10-K for the period ended December 31, 2024, as filed with the SEC on February 28, 2025.

There were no material estimates, which involve a significant level of estimation uncertainty and had or are reasonably likely to have had a material impact on the Trust's financial condition, used in the preparation of these financial statements.