SEC Gives Green Light to Ether ETFs Amid Market Uncertainties
Summary:
The U.S. Securities and Exchange Commission (SEC) has given the nod to Ether-based exchange-traded funds (ETFs), although the eight individual funds are waiting for the approval of their S-1 filings. The situation has held back Ether's price from surpassing the $3,900 resistance. The potential conversion of the Grayscale Ethereum Trust (ETHE) into a spot instrument is causing unease among Ether investors. Traders debate on whether bullish speculations are entering ETH derivatives or if the ETH price is being suppressed. ETH derivatives currently reflect low trust in strong U.S. spot ETF net inflows, which lowers the chances for an ETH rally exceeding $4,000.
On May 23, the U.S. Securities and Exchange Commission (SEC) gave the green light for Ether-based exchange-traded funds (ETFs), but actual operations within the U.S. market will require additional time as each of the eight individual funds awaits approval of their S-1 filings. The pending circumstances have left Ether's (ETH) price grappling with the $3,900 resistance mark, a trend that might be attributed to fluctuations within the Ether futures market.
Investors in Ether are experiencing unease, even with the potential immediate U.S. launch of an effective spot ETF. The concern largely arises from the possible conversion of the Grayscale Ethereum Trust (ETHE) into a spot instrument. If the managing entity chooses to uphold its $11 billion fund fees at significantly higher rates compared to competitors, a scenario similar to the outflows from Grayscale’s GBTC could arise, offsetting new investments from potential rivals including BlackRock, Fidelity, VanEck, and ARK 21Shares.
Some market observers have speculated that the SEC's approval for spot Ethereum ETFs was largely influenced by political pressure from Democrats to appeal to swing voters in the upcoming U.S. Presidential election. However, in line with Bernstein's analysts, the understanding is that the SEC was fully aware that the Ethereum instrument operates under identical regulatory stipulations as spot Bitcoin ETFs and hence chose a more practical approach to avoid a legal skirmish.
An ongoing debate among traders is whether bullish speculations are entering the ETH derivatives market or the ETH price is being suppressed due to a slower than expected launch of the spot Ether ETF. This confusion is largely tied to the mixed signals resonating from the cryptocurrency market, particularly from President Joe Biden's recent disapproval of a Congressional resolution to repeal the SEC's SAB 121 directive, raising red flags over the regulation of digital currencies.
Forecasting the time frame for the SEC's approval of the S-1 filings for each Ethereum spot ETF is a herculean task. Therefore, focus should shift towards trading statistics to determine if a bearish sentiment is looming after several unsuccessful attempts to uphold prices above $3,900. Perpetual or inverse swap contracts carry an inherent rate that recalibrates every eight hours. Succinctly, a positive rate suggests a tendency towards higher leverage implementation by buyers.
Given the nominal rise near 0.03% per 8-hour on May 21, translating to 0.6% per week, the funding cost for ETH leverage remains insignificant, implying a balanced demand between buyers and sellers of perpetual contracts.
The gradually dissipating optimism among investors can be captured in the monthly ETH futures. These contracts seldom mirror the spot Ether price, with sellers typically demanding a 5% to 10% premium due to their extended settlement period. However, during periods of high anticipation, buyers willingly pay up to 20% premium for leverage.
The ETH monthly futures premium swelled to 15% on May 21, following ETH's price rally to $3,800. Simple optimism began to wane on June 3 when the index dipped to 13%, still above the neutral threshold, but far from an indication of short-term bullishness.
However, these statistics do not imply overall investor scepticism about the spot Ethereum ETF launch. Regulatory tightening across the globe, like the Hong Kong crackdown on unauthorized exchanges, Paraguay's seizure of unregistered crypto mining devices, and allegations by several U.S. Senators of Iran employing digital assets for sanction evasion, have cast a shadow over sentiments.
At present, the ETH derivatives reflect limited confidence in substantial U.S. spot ETF net inflows, a scenario attributed either to delayed S-1 approval by the regulator or apprehensions about outflows from Grayscale's ETHE instrument. With its sights set on this scenario, the prospect for an ETH rally exceeding $4,000 in the short term appears slender as per ETH futures pricing indicators.
All opinions, views, and thoughts pertain to the author alone. They do not necessarily represent Cointelegraph’s views or opinions, should not be regarded as investment advice and are presented purely for informational purposes.
Published At
6/4/2024 9:40:55 PM
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