"Shorting Ether ETFs: Top Strategy of 2025 - Bloomberg Insight"

Is Shorting Ether the Top ETF Strategy for 2025?

Betting against Ether seems to have paid off well in 2025, according to Bloomberg analyst Eric Balchunas. In a recent report, he highlighted two exchange traded funds (ETFs) that have surged in value by taking leveraged short positions in Ether. The ProShares UltraShort Ether ETF (ETHD) and T Rex 2X Inverse Ether Daily Target ETF (ETQ) have seen gains of approximately 247% and 219%, respectively, year-to-date. These ETFs use financial derivatives to track Ether's performance inversely with twice the volatility of the underlying cryptocurrency.

Implications for Ether

As these short ETF strategies thrive, the outlook for Ether appears bleak. Ether itself has experienced a 54% decline in value since the beginning of the year. The doubling down on these short positions indicates a lack of confidence in Ether's ability to rebound in the near future. While leveraged ETFs can offer lucrative returns, they also come with heightened risks due to increased volatility.

Weak Revenue Performance for Ethereum

Ethereum, despite having a significant total value locked (TVL) of around $46 billion, has faced challenges in generating revenue. The network's native token has struggled since the implementation of the Dencun upgrade in March 2024, which aimed to reduce user costs but led to a drastic decline in fee revenues. Ethereum's layer-2 (L2) scaling solutions have not been as profitable as expected, impacting the network's overall revenue stream.

Author arndxt noted that Ethereum's future success hinges on its ability to support L2s effectively. However, recent data indicates that Ethereum's L2 chains like Arbitrum and Base have generated meager transaction volumes, resulting in minimal fee earnings for the network. To return to its peak fee revenues, Ethereum's L2 transactions would need to increase substantially.

Market Trends and Sentiment

Smart contract platforms, including Ethereum and Solana, have witnessed a decline in usage during the first quarter of 2025. Asset manager VanEck attributes this downturn to cooling market sentiment, marked by concerns over global trade tensions and impending tariffs imposed by the US government. Traders are cautious as they navigate uncertain economic environments and geopolitical risks.

Overall, the performance of Ether and Ethereum in the ETF market reflects broader trends in the crypto industry. While shorting Ether may be a profitable strategy in the current market conditions, investors should carefully consider the risks and uncertainties associated with leveraged ETFs. As the landscape of digital assets continues to evolve, staying informed and adaptable is crucial for navigating the dynamic world of cryptocurrency investments.