ETHA: A Volatile Growth Diversification Play

Summary ETHA ETF offers exposure to Ethereum, which is gaining adoption due to its smart contracts, DeFi, and tokenization ￰0￱ exhibits high volatility, over 60% IV, making it riskier than its Bitcoin peer IBIT and suitable as a high-beta play for growth diversification. Ethereum's deflationary mechanism and expanding ecosystem support its long-term potential, but regulatory and technological risks remain. I rate ETHA as a Hold, with moderate bullishness for the next 12 months, and will consider increasing my position if volatility ￰1￱ Many investors may believe that the year 2025 could be a pivotal year for Ethereum, which may experience significant growth thanks to the key adoption by the big financial ￰2￱ iShares Ethereum Trust ETF ( ETHA ) is the largest spot ETF tracking Ethereum cryptocurrency, with an AUM of over $15 billion in about one year since inception.

I have a conservative Hold rating on the fund and believe it can serve as a different growth exposure from the growth equity, like mega technology ￰3￱ could be more buyable if the current extreme volatility in its fund price could be subsided in the near ￰4￱ ETF Overview ETHA is an ETF managed by iShares as a spot fund, which holds actual Ethereum tokens, with each share representing a portion of the underlying Ethereum native ￰5￱ ETF portfolio is very straightforward, as shown ￰6￱ 100% ETHER is classified as an alternative asset class representing the digital ￰7￱ Portfolio Holdings (iShares) ETHA was incepted in July 2024 and has quickly become the largest spot Ethereum ETF with AUM of $15.5 B, driven by a spike in investor interest in the cryptocurrency in the past year or ￰8￱ following shows a comparison of 4 Ethereum ETFs with almost identical price performance over all the time spans ￰9￱ one-year performance (the last line) is slightly above 53% for all four ￰10￱ Ethereum ETFs (Author using SA data) The ETHA AUM is the largest fund with the highest expense ratio of 0.25% in the peer group, which may explain why ETHA has the worst 1-year performance (53.15%) despite the small differences in the performance ￰11￱ ETFs are still new, so they will need more time to check and validate the quality of the fund ￰12￱ the other hand, the relatively simple structure and simple strategy will be the main factor to dictate the long-term performance patterns.

I suspect the ETF with the lower expense ratio, such as the Grayscale Ethereum Mini Trust ETF ( ETH ), may have an edge in the long ￰13￱ ETHA and ETH have very active daily volumes in the order of multimillion trades (66 million and 7.6 million, respectively), indicating the popularity of the funds in the ￰14￱ flipping Recently, there has been a hot topic of Ethereum flipping in the investing ￰15￱ people believe that "Ethereum could eventually flip Bitcoin’s market cap". I've found such a debate in the crypto world ￰16￱ prediction aside, I think that Ethereum blockchain technology capabilities are the main reason why the adoption of Ethereum is gaining more ￰17￱ has a higher rate of developer activity and a wider range of uses through its smart contract ￰18￱ following summarizes some key recent developments pointing to fast growth potentials in the foreseeable future: A much broader range of uses expands significantly the versatility and usability of the Ethereum network that supports smart contracts, decentralized finance (DeFi), and non-fungible tokens (NFTs).

Better performance, scalability, and efficiency: Ethereum has significantly reduced its energy consumption and improved scalability compared to Bitcoin's ￰19￱ has been attracting more new developers than Bitcoin, thanks to its growing ecosystem and the fast-emerging technological ￰20￱ potential: Ethereum's platform for tokenized assets has a lot of room to develop, hence driving up its long-term ￰21￱ example, Robinhood now has more than 200 tokenized ￰22￱ available to its European ￰23￱ the other hand, Bitcoin currently has a significantly larger market capitalization, which is more than 4x that of Ethereum at the ￰24￱ is expected to shine in value as a store of value and the status of "digital gold" as it provides the advantage of being the first and most well-known cryptocurrency.

I am not a big fan of the flipping narrative and predicting when Ethereum will take over ￰25￱ I do expect Ethereum to grow faster than Bitcoin in market capitalization in the next few ￰26￱ a result, I expect the ETHA ETF to grow at a double-digit rate that may lead to outperforming the broader stock ￰27￱ deflationary advantage One of the lesser-known effects of the Ethereum network is that a portion of the transaction fees is permanently removed from the circulation ￰28￱ kind of "burning" can make Ethereum deflationary when the Ethereum blockchain becomes very popular and there are a lot of periods crowded with high network ￰29￱ a property will be important to support the Ethereum price and maintain its ￰30￱ is also the key reason why some investors view cryptocurrencies as a viable hedging option against ￰31￱ ETHA ETF could become a multi-purpose holding in one's investment ￰32￱ in mind, this deflation feature is largely dependent on the heavy network usage, which may align well with the bullish Ethereum ￰33￱ the other hand, the idleness of the network in the bearish scenario would make the deflationary effect disappear if the future were to show the other outcome in ￰34￱ super volatile growth play in the market The price of Ethereum is highly volatile because the value proposition is not considered as solid and is different from the traditional approach based on financial values like earnings and profit, ￰35￱ investors still view Ethereum as a speculative ￰36￱ price swings can be quite prevalent in the market for ￰37￱ following is the (IV) volatility chart of ETHA for the past 12 ￰38￱ IV Volatility Chart (MarketChameleon) As we can see the average volatility is above 60%, which is more than 3x times the S&P 500 ￰39￱ this point, I think that the high volatility is a signal for low market ￰40￱ that iShares Bitcoin Trust ETF ( IBIT ) has an IV of around 44, ETHA is regarded as a much riskier investment than IBIT.

I have a Buy rating for IBIT and am starting a Hold rating for ETHA. I generally view ETHA as the high-beta version of the growth ￰41￱ US stock market is at a high valuation point, as the S&P 500's PE ratio is over 31. I have opened a moderate position on ETHA as part of the growth exposures, playing the role of growth diversification. I am observing the volatility closely and plan to add more shares if the ETF's price can be stabilized with lower volatility in 2025, which would show an increased confidence from the market towards Ethereum's future ￰42￱ may take a longer time for more adoption to ￰43￱ high volatility could persist for some time and test investors' ￰44￱ Risk Analysis The extreme volatility is the number one risk for investing in ￰45￱ ETF is perceived as a speculative ￰46￱ are also other risks involved with regulatory uncertainties because the whole regulatory landscape for cryptocurrencies is still ￰47￱ laws could restrict and impact the market for crypto investments and related ￰48￱ a technology perspective, the fast-advancing computing power may introduce new technology that could be disruptive to the Ethereum blockchain before it becomes a true universal platform for digital ￰49￱ Ethereum market would be hugely impacted under such a ￰50￱ risk may not be factored into the current price ￰51￱ Thoughts The Ethereum platform has seen a high momentum in adoption within the big financial institutions due to its higher and wider usability potentials compared to Bitcoin, including the use cases, such as tokenized equities, which may open doors to a much bigger ￰52￱ is the largest Ethereum ETF, which is actively traded in the stock market as well as the options market.

Growth-oriented investors who are looking for long-term growth plays may find ETHA an interesting diversifying candidate in the growth portfolio. I have a neutral rating Hold for ETHA and am moderately bullish for the ETF in the next 12 months.