Factors Behind Ether's Price Drop: Dwindling Hopes for ETF Approval and Decreased Demand
Summary:
On May 14, the price of Ether (ETH) fell by approximately 2.5% to a low of $2,871. This mirrored a similar decrease across the broader crypto market. Several factors could potentially explain this downturn, including dwindling hopes for a U.S. Ethereum exchange-traded fund (ETF) approval, decreased demand for Ethereum-based financial products, and a reduction in network activity. Ethereum investment funds also reported $14.4 million in outflows last week, and on-chain data reveals declining network activity, further contributing to a drop in Ether's value.
Ether (ETH), a popular cryptocurrency, saw its value drop by approximately 2.5% to a two-week low of $2,871 on May 14. This slump matched a downturn experienced across the larger crypto market, which saw total capitalization drop an estimated 2.34% to $2.25 trillion. Several contributing factors may explain this decline in Ether, including diminishing prospects for a U.S. Ethereum exchange-traded fund (ETF), decreased demand for Ethereum-based financial products, and a reduction in network activity.
In recent weeks, many have wondered why Ether's price has fallen. One significant concern among traders is that the U.S. Securities and Exchange Commission (SEC) may label ETH a security, making it ineligible for inclusion in a spot ETF. After the SEC approved spot Bitcoin ETFs on January 10, the assumption was that Ethereum variants would soon follow. However, the SEC's recent Wells notice to the Ethereum-based protocol, Uniswap, on April 10 fuels speculation that the regulator may perceive Ether as a financial security, which could hinder any theoretical U.S. Ethereum ETF.
Legal expert Scott Johnson shared extracts from formal documents on May 14 that hint at the SEC possibly reevaluating Ether's security status as it considers Ethereum ETF applications. Johnson stressed that this issue was not raised during the approval process for Bitcoin ETFs. A senior ETF analyst at Bloomberg, James Seyffart, shared his perspective on the situation, suggesting that the chances of Ethereum ETFs being refused by the SEC, using Ethereum's potential security status as the reason, seem to have increased. Seyffart also speculated that future SEC rulings might not classify Ethereum as a security but indicated that such possibilities are under consideration.
Apprehension regarding the approval of a U.S. Ethereum ETF grew after the SEC delayed its decision on a proposal by Invesco and Galaxy Digital on May 6, pushing the deadline to July 2024. SEC Chair Gary Gensler's refusal to specify whether Ethereum could be regarded as a security during his CNBC Squawk Box appearance on May 7 also contributed to diminished investor confidence in the ETF.
Last week, reports showed that Ethereum investment funds experienced $14.4 million in outflows. Despite a surge of $130 million into crypto investment products last week, Ethereum investors seemed cautious, leading to the $14 million outflow from Ethereum products. Analysts believe these figures demonstrate diminished investor confidence in the token.
Furthermore, on-chain analysis indicates that the activity on the Ethereum network has been less than favorable recently. The number of active addresses on the blockchain reportedly hit its lowest in over a month. In addition to this, the amount of unique active wallets (UAW) also decreased by 32% last week. These trends show reduced demand for ETH, contributing to the price decline.
This summary is not an endorsement of any investment strategy or trading decisions—every investment involves a level of risk, and those interested should conduct their own research before making any decisions.
Published At
5/14/2024 9:42:56 PM
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