As Ethereum’s native cryptocurrency, Ether (ETH) is the second-largest digital asset after Bitcoin with a market capitalization of over $41 billion. And while ETH is often traded on exchanges against fiat currencies like the U.

S. dollar, there’s another popular way to get exposure to this digital asset: Ethereum exchange-traded notes (ETNs).

An ETN is a debt security that tracks the price of the underlying asset, in this case ETH. It’s issued by a financial institution and traded on a stock exchange.

And because they’re traded on an exchange, ETNs are accessible to a wider range of investors than traditional investing products like ETFs.

So does an ETN tracking ETH always move in lockstep with the actual price of ETH? Let’s take a closer look.

The short answer is no, an ETN tracking ETH does not always track the price of ETH. In fact, there can be significant divergence between the two prices at times. This is due to a number of factors, including:

The value of the underlying asset: The price of ETH can be influenced by a number of factors including global news events, innovation within the Ethereum network, and overall demand from buyers and sellers.

The price of ETH can be influenced by a number of factors including global news events, innovation within the Ethereum network, and overall demand from buyers and sellers. The structure of the ETN: Some ETNs are structured as unsecured debt instruments while others are backed by collateralized assets.

This can impact the degree to which the ETN tracks movements in the underlying asset.

Some ETNs are structured as unsecured debt instruments while others are backed by collateralized assets. This can impact the degree to which the ETN tracks movements in the underlying asset.

Fees and expenses: All investment products have associated fees and expenses which can eat into returns. For example, some Ethereum ETNs have annual management fees as high as 2%.

All investment products have associated fees and expenses which can eat into returns.

Market liquidity: The more liquid a market is, generally speaking, the easier it is for buyers and sellers to trade at prices that closely reflect true underlying value. So illiquid markets can see wider spreads between bid and ask prices which can impact how closely an ETN tracks its underlying asset.

The more liquid a market is, generally speaking, the easier it is for buyers and sellers to trade at prices that closely reflect true underlying value. Exchange rate risk: For investors looking to trade an Ethereum ETN denominated in Swedish Krona (ETHXBT), for example, there’s also risk associated with changes in the value of Krona relative to other fiat currencies like the U.

S dollar. So even if ETHXBT remains unchanged in Krona terms, it could still lose value if Krona weakens against USD.

While all these factors impact how closely an Ethereum ETN tracks movements in ETH price, it’s important to remember that tracking error will vary over time. So what might look like significant divergence at one point could simply be due to normal market fluctuations that eventually even out over time.

In conclusion, while an Ethereum exchange-traded note may not always track movements in ETH price perfectly, it provides investors with another way to access this popular digital currency without having to go through a cryptocurrency exchange.