Ethereum Struggles to Break $3,900 Barrier Amid ETF Delays and Growing Competition
Summary:
Ether (ETH) has been unable to maintain its position above $3,900, despite several attempts in the past week. Delays in the trading commencement of Ethereum spot exchange-traded funds and expected substantial outflows from the Grayscale Ethereum Trust are potential reasons for this stagnation. Additionally, the growing open interest in Ether futures and competition from other scalable networks could be contributing to the limit on Ether's value. Ethereum's lagging mainnet volume growth and on-chain metrics suggest the need for improvement amongst increased adoption of alternative blockchains.
Over the past week, Ether (ETH) has periodically crossed the $3,900 threshold, but has been unable to maintain its position. Market observers were expecting a rise as a result of the spot Ethereum exchange-traded fund (ETF) gaining a green light from the United States Securities and Exchange Commission (SEC), a decision made two days following Ether's price increase on May 21. Despite this, the reality did not meet expectations.
The delay can likely be attributed to the pending approval of the specific Form S-1 for each respective fund. Analyst Eric Balchunas from Bloomberg anticipates that trading of Ethereum spot instruments will begin by July 4, while his co-worker James Seyffart has noted that BlackRock's updated S-1 also suggests an imminent launch of spot Ethereum ETFs.
Yet, analysts warn that Ether may encounter resistance if the Grayscale Ethereum Trust (ETHE) sees major outflows after its transition to an ETF, mirroring issues experienced by Grayscale’s Bitcoin fund (GBTC) due to hefty fees. They suspect that outflows from Grayscale ETHE alone could surpass $100 million daily in the initial period, potentially outweighing any incoming funds from new investors.
In part, Ether's inability to break the $3,900 resistance can be linked to the rally that took place prior to the approval of the spot ETF. Moreover, the fact that trading is taking longer than some investors anticipated has also triggered uncertainty and negatively impacted prices, a concern given Ether's futures open interest reached an all-time high on May 28.
Open interest in Ether futures could lead to liquidation risks. It represents the total of ETH futures contracts currently available across all derivatives exchanges like Binance, CME, OKX, and Bybit. While ETH futures buyers and sellers are always balanced, an increasing amount at stake can drastically escalate the risk of liquidations. Therefore, the hefty $16.8 billion in open interest on Ether futures presents a potential risk to would-be buyers, helping to keep the ETH price under $3,900.
Ethereum is facing challenges from other networks as well. While Ethereum's high gas fees indicate ongoing demand, they make room for competitors that emphasize scalability. Although a portion of the activity has shifted to Ethereum layer-2 solutions, some users and projects are gravitating towards BNB Chain, Solana, or Aptos.
It's worth noting that not every decentralized application (DApp) necessitates the level of decentralization which Ethereum offers. Users involved in basic finance, gambling, or games typically avoid using bridge solutions just to access a lower-fee environment. Therefore, Ethereum's lagging mainnet volume growth behind its competitors is perceived as a missed opportunity.
As for Ethereum's daily active addresses, a slight decline of 2% was noted on May 30 compared to the previous day. The total volume transacted on the Ethereum network only saw a meager 2% increase over the same period. These stats, along with the encroachment of alternative blockchains - for instance, BNB Chain's daily active addresses exceeding Ethereum's by over four times - suggest Ethereum's on-chain metrics leave room for improvement, which could possibly hinder Ether’s chances of rising above $3,900 in the near term.
Published At
5/30/2024 8:33:33 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.