Ethereum ETF Excitement? The U.S. Securities and Exchange Commission (SEC) approved spot Ethereum exchange-traded funds (ETFs) on May 23. However, the regulator has not yet approved the S-1 filings for each of the eight funds, so it will take longer for these instruments to trade in U.S. markets. Ether’s $3,813 price has had difficulty breaking beyond the $3,900 barrier due to its unpredictability; the solution might be found in Ether’s futures markets.
Ethereum Spot ETF Launch Timing and Outflows Uncertain
The Grayscale Ethereum Trust (ETHE) conversion into a spot instrument is a source of unease for Ether investors, especially for those who believe that the effective spot ETF debut in the U.S. is soon. In the event that the fund administrator chooses to keep its $11 billion in fund fees substantially higher than its competitors, the outcome is expected to be a reflection of Grayscale’s GBTC withdrawals, countering inflows from rivals like as BlackRock, Fidelity, VanEck, and ARK 21Shares.
According to some commentators, political pressure from Democrats in the last hours of the U.S. Presidential election this November affected the SEC’s decision to approve Ethereum’s spot. But analysts point out that the SEC “took a more pragmatic approach and avoided a legal battle,” citing knowledge that the Ethereum instrument shared the same regulatory framework as the current Bitcoin ETFs.
The question of whether optimistic bets are being placed through the ETH derivatives markets or if bets on the spot Ether ETF are taking longer than anticipated to settle is causing traders to artificially depress Ether’s price. This ambiguity is a result of the market’s conflicting signals, especially in light of U.S. President Joe Biden’s recent veto of a Congressional resolution that sought to overturn the SEC’s SAB 121 guidelines, which sparked worries about the regulatory landscape around cryptocurrencies.
It is almost impossible to predict how long it will take the SEC to approve the required S-1 filings for every Ethereum spot ETF, so instead of focusing on this, one can look at trading metrics to see if traders are leaning pessimistic following several unsuccessful attempts to keep prices over $3,900. Inverse swaps, or perpetual contracts, have an inherent rate that is updated every eight hours. In summary, a positive rate means that longs (buyers) want to use larger leverage.
The funding cost for ETH leverage has been negligible, with the exception of a minor surge on May 21 of about 0.03% per 8 hours, or 0.6% per week. This indicates that long and short positions have been evenly balanced through the use of perpetual contracts.
Investor Excitement is Diminishing in Monthly ETH Futures
One should keep an eye on the ETH monthly futures annualized premium (base rate) to rule out externalities unique to perpetual contracts. Due to their longer settlement term, which drives sellers to seek a 5% to 10% premium, these contracts hardly ever track the spot Ethereum price. However, at times of excitement, purchasers are willing to pay a higher premium for leverage, so this differential might easily exceed 20%.
On May 21, ETH’s monthly futures premium increased to 15% as a result of the cryptocurrency’s price surge to $3,800. On June 3, though, the indicator returned to 13%, which is just above the neutral level but does not indicate short-term bullishness, and the modest optimism started to wane.
Considering the tighter rules globally, this data does not necessarily imply that investors lack confidence in the spot Ethereum ETF debut. For instance, Paraguay seized unregistered cryptocurrency mining equipment, Hong Kong outlawed unlicensed exchanges in the area, and a few U.S. senators asserted that Iran is utilizing digital assets to evade sanctions and finance terrorist groups.
ETH derivatives currently show a lack of confidence in robust net inflows into U.S. spot ETFs, irrespective of the reason—the regulator’s delayed approval of the S-1 or the worry over withdrawals from Grayscale’s ETHE instrument. Consequently, ETH futures pricing indicates that there is little chance of a rally above $4,000 in the foreseeable future.
