Why ETH Is Less Demand After the Ethereum ETF?

July 31, 2024 07:50 PM AEST | By Team Kalkine Media

Why ETH Is Less Demand After the Ethereum ETF? — Image source: Shutterstock

Spot Ethereum ETFs Launch Meets Market Resistance

The long-awaited launch of spot Ethereum ETFs in the U.S. on July 23 was anticipated to drive significant price movements. However, the market’s reaction has been tepid, with ETH experiencing a 9% drawdown immediately following the launch. Currently, ETH is down 4.05% from its price on the launch date. The less-than-expected market performance raises questions about the broader factors affecting ETH’s price trajectory.

Grayscale’s Impact on Ethereum ETF Outflows

Grayscale's Ethereum Trust (ETHE) has seen accelerated outflows compared to its Bitcoin counterpart, GBTC, following the launch of spot Bitcoin ETFs earlier this year. According to Sosovalue, the cumulative net inflow for Ethereum ETFs is negative $439.64 million, highlighting significant selling pressure. The increased outflows from Grayscale’s ETHE suggest that investors are moving away from Ethereum investments, contributing to the price struggles.

Declining Exchange Withdrawals Signal Reduced Demand

A key indicator of market demand is the volume of Ethereum withdrawal transactions on exchanges, which has significantly declined since March. This decline correlates strongly with ETH's price performance, indicating a reduction in market demand. Crypto Lion, an independent analyst, suggests that the current lack of demand could be contributing to ETH’s stagnant price, as fewer investors are withdrawing ETH for trading or holding purposes.

Leverage Ratio and Price Volatility

The estimated leverage ratio (ELR) has been a critical factor in ETH price movements during recent volatile periods. ELR measures the open interest in futures contracts relative to the balance of corresponding exchanges. A high ELR often signifies that futures markets are influencing price action, leading to short-lived or erratic price movements. During this period, the high ELR has contributed to ETH’s price instability, compounding the challenges faced by cryptocurrency.

Coinbase Premium Index Reflects Weak Investor Sentiment

Data from Coinbase further illustrates the lack of demand for ETH. The Coinbase premium index, which tracks the difference between the spot price and futures price of ETH, has been in decline throughout Q2 2024. This indicator, which peaked in March when ETH reached a yearly high, has recently turned negative. A negative premium index suggests that U.S. investors are experiencing reduced buying pressure, leading to diminished spot demand for Ethereum.

May’s Bullish Trend and Current Reversal

In May 2024, the potential approval of an Ethereum ETF had a positive impact on ETH’s spot buying activity on Coinbase, resulting in a bullish trend for the cryptocurrency. The Coinbase Premium Index spiked above 0.15 during this period, reflecting increased demand from ETH spot buyers. However, the current negative trend in the index indicates a reversal of this bullish sentiment, negatively affecting ETH’s price.

Ethereum’s recent price struggles, combined with the challenges in the spot ETF market, underscore the complex dynamics influencing its performance. The launch of spot Ethereum ETFs has not yet delivered the anticipated boost to ETH’s price, with significant outflows from Grayscale’s ETHE and declining demand on exchanges contributing to the downturn. As the market adjusts to these new developments, Ethereum's ability to overcome resistance levels and regain momentum will depend on shifting investor sentiment and broader market conditions.

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.