Ethereum Recovers Amid Market Downturn; Sees Boost from Hong Kong ETF Launch and Powell's Remarks
Summary:
After a 14.2% decline from April 28 to May 1, the price of Ether (ETH) rebounded on May 2. Overall market downturn was primarily due to worsening macroeconomic conditions globally. In spite of the first-ever net outflows from the BlackRock Bitcoin spot exchange-traded fund (ETF), Hong Kong launched its own spot cryptocurrency products on April 30, seeing net inflows of $44 million on the first trading day. Ethereum network's user growth and trading volume increased mostly from decentralized applications. Furthermore, investors found relief upon hearing U.S. Federal Reserve's Chair, Jerome Powell, indicate that interest rates likely peaked at 5.5%, promoting risk-on investments like cryptocurrencies.
Ether (ETH) experienced a slight recovery from its prior losses on May 2nd after plunging by a steep 14.2% from April 28 to May 1, hitting a low of $2,817. This downturn lead to $162 million in leveraged long liquidations. Nevertheless, Ether's price bounced back 6.4% between May 1 and May 2, bringing it close to the $3,000 mark.
The cryptocurrency market downturn can be predominantly associated with worsening macroeconomic parameters. These encompass ongoing inflation in the U.S. and significantly weaker than projected 1.6% growth in the first quarter. In Asia, the Bank of Japan had to repeatedly intervene to halt the depreciation of the yen, while the Eurozone reported a mere 0.4% annual GDP growth.
Ether's market value was hit as traders became increasingly cautious, but this sentiment was reflected across a range of asset classes. For example, WTI oil prices fell to a 50-day low of $78.18 on May 2. In addition, commodities such as copper and wheat declined by 4.4% and 3.2% respectively since April 29.
A major setback for the cryptocurrency sector was the first-ever net outflows from the BlackRock Bitcoin spot exchange-traded fund (ETF) on May 1, especially as total spot Bitcoin (BTC) ETFs saw a net outflow of $1.2 billion over six trading days starting April 24.
The apparent disinterest from institutional investors raises concerns as the U.S. Securities and Exchange Commission (SEC) nears the deadline to decide on the spot Ethereum ETFs, with a final decision on the VanEck Ethereum ETF requests expected by May 23.
Despite the dwindling demand for U.S. spot Bitcoin ETFs, Hong Kong launched their own spot cryptocurrency products on April 30. On the first day of trading, there were net inflows of $44 million to the spot Ethereum ETFs, suggesting there was indeed demand for these commodities. While the trading volume was relatively subdued, it's crucial to note that the ETF market in Hong Kong is noticeably smaller than the U.S.
The recent surge in Ethereum network activity has led to an improvement in market sentiment and has enforced support at the $2,800 level.
The volume of decentralized applications (DApps) running on the Ethereum platform increased by 15% to $42.2 billion over the past week. In contrast, BNB Chain and Solana saw their volumes decrease by 20% and 6.5% respectively. Key performers for Ethereum DApps were Balancer, increasing by 31%, Curve by 21%, and Dodo with an impressive 57% rise.
Considering the number of active addresses as a measure of DApps involvement, Ethereum saw a rise of 29% over seven days. In contrast, its rivals, BNB Chain and Solana, observed declines of 13% and 14.5% respectively over the same period. Ethereum's network user growth was predominantly driven by applications such as Xterio, EigenLayer, and Zerion.
Ether's price also saw the benefit of U.S. Federal Reserve Chair Jerome Powell's comments after the conclusion of a two-day monetary council meeting on May 1. Powell stated that interest rates have potentially reached their ceiling at 5.5%, which traditionally favors risk-on investments like cryptocurrencies.
While the relaxation of interest rates could still be a few months away, possibly stretching into the first half of 2025, investors remain optimistic that the Fed will begin to lower interest rates. This ultimately reduces the allure of fixed-income investments in comparison to inflation, encouraging the market towards riskier asset classes. Currently, Ether investors can breathe a sigh of relief as the toughest period of the central bank's liquidity constraint seems to be past.
The information in this article is not intended as investment advice or recommendations. There is risk involved in all trading and investing activities, and individuals should conduct their own research before making a decision.
Published At
5/2/2024 11:50:22 PM
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