Ethereum ETF Approval Doesn't Boost Ether's Price Amid Regulatory Uncertainty and Network Issues
Summary:
Despite the approval of the Ethereum spot exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC), the price of Ether failed to hold above $3,800, surprising market participants. Factors such as uninhibited approval of the individual S-1 statements, slow network growth, high transaction fees, and regulatory uncertainty contribute to Ethereum's performance issues. Ethereum network metrics also indicate a lack of growth and ongoing regulatory actions further perpetuate uncertainty. The article advises readers to conduct their own research before making any trading or investment decisions.
On May 23, the U.S. Securities and Exchange Commission (SEC) gave a green light to the Ethereum spot exchange-traded fund (ETF). However, this landmark decision did not see Ether's (ETH) value rise above $3,800 on May 24, creating surprise since just two days earlier, ETH was priced at $3,943. Many were caught off guard by the surprising timing of the decision, given the uncertain climate regarding the ETF's approval.
Ethereum still lags 24% behind its record high
Some observers were quick to point out that the individual S-1 statements from each issuer have yet to gain SEC approval - a process that can span weeks or even months. A combination of factors contributes to Ether's mediocre performance, including slow growth of the network, high transaction fees, and regulatory ambiguity in the U.S.
Profits taking was seemingly influenced by the forthcoming spot ETF's approval, giving rise to a 23% surge on May 20. Often called "sell the news", traders were buying up ETH in anticipation of the official announcement, especially after exchanges like the NYSE and Nasdaq were reportedly encouraged by the SEC to expedite their 19b-4 filings on May 20.
Even with excitement around the spot ETF approval, Ether is still 24% down from its November 2021 peak of $4,868. This suggests the hype was not enough to drive Ether’s market cap above its present $445 billion. Interestingly, Bitcoin (BTC) trades only 7% below its March 2024 record high, hinting at other constraining factors on Ether.
Static Ethereum network metrics
Over the last 30 days, the Ethereum network's metrics indicate little growth in decentralized applications (DApps) volumes and deposits. Ethereum's TVL (total value locked), excluding liquid staking, fell by 6% after peaking at 18.3 million ETH on May 16. This measure does not factor in DApps not requiring large deposits, such as non-fungible token (NFT) marketplaces, gaming, social platforms, and collectibles. In-depth analysis of the network’s top-tier applications reveals significant volume in Uniswap, the leading decentralized exchange (DEX).
Indeed, seven out of the top ten Ethereum DApps, as per 30-day volumes, saw active address numbers decline, with Uniswap, the frontrunner, seeing a 25% slide in activity. Notably, several DApps managed to draw in fewer than 4,000 addresses, raising questions about this network's total addressable market, particularly given competitors' lower rates.
Related: DeFi exec claims Ether ETFs could ruin crypto's ethos
Challenges with arbitrage, validators, and regulatory ambiguity
Miner-extracted value (MEV), where validators manipulate transaction orders within a block for profit generation, has become a hurdle for Ethereum. This leads to increased network traffic and higher transaction costs. On May 17, Ethereum co-founder Vitalik Buterin attempted to tackle this issue. He suggested protocol-level measures to restrict MEV developers' access to information, either by entirely separating the validation process from block content or limiting block producers' ability to favor certain transactions. But, it’s unlikely that a practical solution will materialize anytime soon.
Spot ETF approval represents a positive regulatory turn, defining Ether as a digital commodity, said Paul Grewal, Coinbase’s Chief Legal Officer. However, ongoing regulatory actions against Consensys and the Ethereum Foundation continue to cast clouds. According to some experts, the question of Ether’s classification as a non-security instrument remains unresolved until the SEC approves the S-1 registration statements.
In April, Consensys received a Wells notice from the SEC regarding the trading and staking services of MetaMask. Furthermore, Fortune magazine reported in March that the regulator was scrutinizing firms allegedly linked to the Ethereum Foundation concerning its staking services. This continued to fuel regulatory ambiguity, which in turn affects Ether’s performance.
Readers are advised to conduct thorough research before making any investment or trading moves, as every action carries risk. This piece does not offer investment advice or recommendations.
Published At
5/24/2024 11:17:49 PM
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