Ethereum Struggles Amid Regulatory Uncertainty and Mixed Signals in Futures Market
Summary:
The U.S. Securities and Exchange Commission (SEC) has approved the establishment of spot Ethereum Exchange-Traded Funds (ETFs) but trading cannot commence until the individual S-1 filings of all eight associated funds are approved. Amid the uncertainty, Ethereum's price is struggling to break the $3,900 resistance, which some attribute to turmoil in Ether’s futures markets. Investors' anxiety, political influences, mixed signals in the crypto market, and regulatory concerns are amongst the factors impacting Ethereum prices. ETH derivatives reflect limited confidence in U.S. spot ETF net inflows, reducing the chances of ETH prices rallying above $4,000 in the near term.
On the 23rd of May, the United States Securities and Exchange Commission (SEC) authorized the establishment of spot Ethereum Exchange-Traded Funds (ETFs). However, the individual S-1 filings for each of the eight funds still need approval, meaning actual trading of these instruments on U.S. markets may take some time. Owing to this uncertainty, Ethereum's (ETH) price has failed to break through the $3,900 mark, and the answer may be linked to the futures markets for Ether.
Investors in Ether are anxious, even though they expect the spot ETF to launch soon in the U.S, primarily because of the potential transition of the Grayscale Ethereum Trust (ETHE) into a spot instrument. If the fund manager elects to keep the $11 billion fund fees at significantly higher rates than its competitors, it could lead to outflows similar to Grayscale's GBTC, thereby nullifying inflows from rivals such as BlackRock, Fidelity, VanEck, and ARK 21Shares.
Some have argued that the SEC's approval of spot Ethereum resulted from eleventh-hour political lobbying by the Democrats seeking swing vote support ahead of the U.S. Presidential elections in November. But analysts point out that the SEC was aware that Ethereum instruments have the same regulatory structure as the Bitcoin ETFs, and thus decided to take a more pragmatic approach to avoid a legal dispute, according to Bernstein’s analysts.
Current debates revolve around whether optimistic bets are being made via ETH derivatives markets or if the Ether price is intentionally kept low due to bets on delayed spot Ether ETF launch. This primarily originates from the mixed signals received from the crypto market and recent actions by President Joe Biden, who nixed a Congressional resolution intended to overturn the SEC’s SAB 121 guidance. This sparked concerns about the regulatory atmosphere surrounding cryptocurrencies.
Given the unpredictable timeline of SEC approvals for each spot Ethereum ETF's S-1 filings, focus should shift to trading metrics to gauge whether traders are trending bearish after numerous unsuccessful attempts to maintain ETH prices above $3,900. Perpetual contracts or inverse swaps feature a rate that is recalculated every eight hours, with a positive rate indicating a tilt towards higher leverage by buyers.
The funding cost for ETH leverage aside from a brief surge on May 21 has been inconsequential, which indicates a balanced demand between buyers and sellers using perpetual contracts.
The optimism that was reflected in the annualized premium (basis rate) of ETH monthly futures, after Ethereum's price rallied to $3,800 on May 21, started dwindling on June 3. However, the indicator still remains slightly above neutral, not necessarily signaling short-term bullishness.
This doesn't explicitly suggest that investors are doubtful about the spot Ethereum ETF launch amidst tightening global regulations. Instances such as the banning of unlicensed exchanges in Hong Kong, the seizure of unregistered mining equipment in Paraguay, and allegations from a couple of U.S. senators stating that Iran is using digital assets to evade sanctions, might play a part in forming this perception.
Currently, ETH derivatives reveal a lack of confidence in strong U.S. spot ETF net inflows. Whether the cause is the delay in S-1 approval from the regulator or anxiety about outflows from Grayscale's ETHE, the immediate prospects for a surge above $4,000 seem slim, as assertained by ETH futures pricing.
This article is offered for general informational purposes and should not be considered as a substitute for either legal or investment advice. The author's perspective expressed here do not necessarily align with or represent those of Cointelegraph.
Published At
6/4/2024 9:40:00 PM
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