Summary ETHU is recommended as a short-term tactical trade, not a long-term investment, due to capital decay risks in leveraged funds. Ethereum's technical indicators, including moving averages and RSI, suggest a strong bullish setup, similar to past successful trades in DOGE and Bitcoin. If Ethereum retests its March high, ETHU could yield a 20% return; if it hits its all-time high, returns could reach 60%. Bitcoin's dominance is declining, suggesting Ethereum may lead the market; I'm planning to hold ETHU through 2024, with potential adjustments if ETH exceeds $4.5k first. Back in July, I initiated coverage of the Volatility Shares' 2x Ether ETF (BATS: ETHU ) with a 'hold' call and a cautious tone. In that piece, my view was that positions in funds like ETHU are not wise for long term investment. This is not what I'd expect to be a controversial view given that even the fund manager warns against using the product for long term investment. Rather, the primary utility of products like ETHU is for short term, tactical trades. Given that, I'm updating coverage of the fund, as I suspect longing ETHU shares will pay off handsomely between now and the end of the year. Fund Details and Objective Details ETHU Inception 6/4/2024 AUM $733.7 million Net Expense Ratio 0.94% Dividend Yield 0.30% Source: Seeking Alpha, as of 12/3/24 At 0.94%, the net expense ratio isn't the cheapest crypto-proxy that traders will find in the market. It's far less expensive to put on a straightforward spot ETF position through the iShares Ethereum Trust ETF (NASDAQ: ETHA ) and pay 0.25% without the long term fund decay risk. But the lack of relative risk in something like ETHA is because the short-term reward of ETHA won't be as high as ETHU if the price of Ethereum ( ETH-USD ) rises. The objective of the Volatility Shares' 2x Ether ETF is very simple because it's right in the name of the fund; ETHU intends to double the daily return of ETH. Key Risk The key risk in holding leveraged fund shares too long is capital decay. Leveraged funds are highly risky due to the fact that they are generally rebalanced daily. For a 2x long fund like ETHU, the leveraged fund shares can maximize gains very well when the underlying asset being leveraged is in a sustained uptrend. Thus, if these types of funds work as designed, on days when underlying assets increase by 1%, daily rebalanced leveraged funds should increase by 2%. Of course, if traders guess wrong they can lose a lot of capital as a 1% decline in the underlying will produce double the loss through funds like ETHU. Chop is not desired either as it will take only a few weeks for the fund to start under-performing the underlying asset, even to the upside. By taking a trading position in ETHU, one is making a short-term wager that the price of Ethereum will rally over a sustained period of time. I believe we have entered that sustained period for Ethereum. Ethereum's Technical Bull Case Earlier this month, I shared a more fundamental take on why I felt Ethereum was about to get its turn leading the market. Among my rationale, investor sentiment on the coin appears to be shifting if November capital flows are any indication. Furthermore, despite the proliferation of cheaper-to-use, less fragmented blockchain ecosystems, Ethereum is still the boss of DeFi. Beyond fundamentals though, traders often need a favorable technical setup as well before putting on any position, and I think Ethereum's setup is quite good. I generally try to keep my TA very simple. I'm not into Elliot Wave theory and I don't mess with Fibonacci levels. My approach is to simply look at relative strength, moving average trends, and breakouts. When I see the signal I want from all three, I put on the trade. TrendSpider The reason why I like this Ethereum chart so much is because I have all three elements that I want out of a chart. 50, 100, and 200 day moving averages all trending higher with the 50 set to cross the 200 RSI is back out of overbought territory after a strong rally from early November Multi-month resistance (red diagonal line) has been broken out and back-tested These elements were at play in Dogecoin ( DOGE-USD ) as well when I said that coin was set to run back in late-October. TrendSpider DOGE rallied over 200% following that piece. Ethereum's breakout back-test is nearly identical to the one I shared in the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO ) article for Seeking Alpha on November 5th when I said to buy the 'breakout shakeout.' TrendSpider Bitcoin's rally since that article has been over 30% in less than a month. I suspect Ethereum's return will be closer to that of Bitcoin rather than the wildly ridiculous 200% seen in Dogecoin over roughly the same time frame. TrendSpider But even if ETH just retests its March high of $4k per coin, ETHU should return close to 20% from current levels. If ETH tests its all-time high of $4,867 back in November 2021, ETHU should produce close to a 60% return. Closing Thoughts TrendSpider In the last two years, ETH is down about 60% against Bitcoin ( BTC-USD ). We've certainly seen this happen before following the 2017 top. ETH's under-performance didn't end until 2020 when the next bull market began. I think we're seeing a similar setup today. Bitcoin dominance appears to be potentially peaking, having hit 60% via CoinMarketCap's measurement in mid-November. That figure is now closer to 53%. We've seen Bitcoin do it. We've seen meme coins do it. Even 'dino coins' have enjoyed a renaissance over the last several weeks. Based on my read on both the technicals and some of the fundamentals, I suspect ETH is going to get its turn leading the market. I'm partially expressing that view through shares of ETHU in addition to my spot ETF exposure and holding the asset directly on chain. I cannot stress enough that this ETHU position is a trade, not a long term investment. Thus, I'm still calling the fund a 'hold' rather than a 'buy.' I expect to keep the position on through the end of 2024. If ETH surpasses $4.5k per coin before that, I'll lighten or take it off entirely.
