Following the launch of the Spot Ethereum ETFs, the price of Ethereum (ETH) has faced unexpected challenges, contradicting the initial excitement surrounding the event. Despite the anticipation for investors to gain exposure to ETH without directly purchasing the token, the market response has been lackluster. Since the trading of Spot Ethereum ETFs commenced on July 23, ETH has experienced a decline of approximately 10%.
Factors Contributing to ETH Price Decline
Markus Thielen, Head of Research at Matrixport, highlighted various reasons behind the downward trend in ETH price post-Spot Ethereum ETFs launch. One significant factor is the outflows from the Grayscale Ethereum Fund, which holds a substantial amount of ETH, amounting to around $9 billion. The high management fees of Grayscale compared to competitors offering lower fees, as low as 0.19%, have led to significant withdrawals from the fund. In just the first two days post-launch, over $800 million flowed out of the Grayscale ETH fund, impacting the overall market sentiment.
Additionally, the distribution of Mt. Gox holdings coincided with the Spot Ethereum ETFs launch, exerting further selling pressure on the crypto market. Similar to the reaction seen with the Spot Bitcoin ETFs, the outflows from the Grayscale ETH fund have played a considerable role in driving the price of ETH below $4,200. These outflows reflect one of the primary factors contributing to the decline in ETH price.
Evaluation of ETH Price Performance
Thielen also raised concerns regarding the potential market top for ETH, utilizing the daily stochastics indicator as a key reference point. When the indicator value is low, it typically indicates a buying opportunity, suggesting that the price has bottomed out. Conversely, a high value signifies that the price may have reached its peak. Prior to the Spot Ethereum ETFs launch, the ETH price registered a score of 92% on the stochastics indicator, indicating an overbought market condition. A score above 90% is typically considered bearish, signaling a possible reversal in price trajectory.
As the stochastics indicator value has decreased from 92% to 87%, a 5% decline, there is still a significant room for further downside movement in ETH price. Thielen advised caution in light of ongoing market factors such as the Mt. Gox overhang, the US earnings season, and the historically weak seasonals in August and September. Given these considerations, Thielen suggested that maintaining a short position on Ethereum could be a prudent strategy in the current market environment.
The launch of Spot Ethereum ETFs has not had the intended positive impact on ETH price, leading to unexpected struggles and a bearish outlook for the cryptocurrency. With multiple factors driving the price downward, investors need to carefully evaluate their positions and consider the potential risks associated with the current market conditions.