While Bitcoin (BTCUSD) often hogs the spotlight as the "digital gold" of our time, Ethereum (ETHUSD), which I track via exchange-traded funds (ETFs) like Grayscale Ethereum Staking ETF (ETHE), has spent the better part of the last year getting passed over. Oh, the price swings have been dramatic, even more so than that of Bitcoin.
But in the wake of the Iran war, crypto technical charts, while not my favorite investing subject, are starting to show what I call “signs of intelligent life.” Here are the charts and the associated real-world case for a temporary rally in ETHE.
A Closer Look at ETHE
First, the daily view. This is, dare I say, compelling. Maybe not to a “guns-a-blazing” momentum type that tries to profit from what’s already in an established uptrend. That is, frankly, the majority of technicians I’ve seen. And it works very well for many of them.
I am a contrarian technician. I'm not trying to catch bottoms, but I am more interested in identifying something in, say, the third inning (not the seventh) of a big move. Because within my total portfolio, there’s always some type of disaster hedge.
ETHE has essentially been a super high beta version of the Invesco QQQ Trust Series 1 (QQQ) and SPDR S&P 500 ETF Trust (SPY) — as is the case with many ETFs now. So when the market gets happy, I look for beta plays. As we see here, over the past five years, ETHE checks in with a beta of 3.58x. That means it is about 3.5x more volatile than the S&P 500 Index ($SPX).
That’s “Beta Hall of Fame” material. And the practical application to me is this: If I buy a 1% position in ETHE, it could end up behaving like a 3% position in SPY. But I’m only risking 1% of my portfolio, not 3%! That’s one very important aspect of managing risk.
The Bull Case for Ethereum
The narrative for an Ethereum comeback is about the plumbing of the global financial system, the shift from a speculative token to a true utility. That is showing up gradually in the weekly chart, via a PPO that is very close to completing a cross upward.
If that follows through, a move from the current level is a higher probability. It is not quite there yet, but if it happens, I’ll note it is nearly 150% up from last year’s price high for ETHE, around $40 a share.
I am encouraged by ETHE’s ROAR Score for two reasons. First, the score was at 30 as of Friday’s close, but looked poised to rise from there. Even a move to 40 or 50 would likely indicate that there’s more gas in the tank here.
As I caution investors who follow my ROAR Scores method, the score itself can be used in isolation, but more as a “law of averages,” not putting a lot of chips on every single isolated score at all times. In context, a 30 is still in high-risk territory. But that’s where high returns start, too.
So when an ETF as volatile as this one starts to show signs of moving off a depressed level, in price and then in ROAR Score terms, that is as important as what the score is right now. As hockey great Wayne Gretzky said, “Skate to where the puck is going.”
However, the comeback story faces a challenge. For Ethereum to truly break out, it needs to prove to the institutional world that it is more than just a playground for digital art and speculative games. It must cement its position as the "Internet of Value."
And since it has yet to prove itself as more than a high-beta play on the broad stock market, specifically the technology sector, the risk remains in the form of a broader risk-off environment in the equity markets. That could drag ETHE down, regardless of its fundamentals.
Still, a comeback could be in the cards. And I like a good chart!
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob's written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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