Spot Ethereum ETF is about to be launched, will the market fall first and then rise?

[TL;DR]

The official confirmation of the recent spot Ethereum ETF to be fully approved at the end of the summer has resulted in outstanding performance for related tokens in the Ethereum liquidity staking sector, such as ETHFI, LDO, SSV, etc.

The market's reaction to the news did not continue the strong upward momentum seen on May 20th, but instead showed signs of weakness in the absence of other catalysts.

The recent general market decline may limit the scale of Ethereum ETF without a staking mechanism, but there is still great long-term growth potential.

Introduction

SEC Chairman Gary Gensler recently stated that the Ethereum ETF will receive full approval at the end of the summer, but the Ethereum price subsequently adjusted lower due to the impact of the Fed policy meeting, and the market is still in a fluctuating state, alternating between hot and cold.

Spot Ethereum ETF approved at the end of summer, with outstanding performance in the zone token

On June 13th, Gary Gensler, Chairman of the US Securities and Exchange Commission, testified at a Senate hearing that a spot Ethereum ETF is expected to receive full approval from the agency by the end of the summer.

Gensler further stated that after the preliminary approval of the first batch of ETFs, the entire process is progressing smoothly. Currently, the final registration documents for these funds, namely the S-1 documents, are actively being processed by SEC staff.

In fact, Ethereum rose 20% earlier than May 20th and digested the Favourable Information, so the expected surge did not occur after the news broke out.

As shown in the figure below, Ethereum price led the way in early trading when the news broke, but quickly faced selling pressure and pulled back rapidly to below $3500.

Figure 1 Source: Gate.io

After the Federal Reserve policy meeting announced that the interest rate would remain unchanged within the range of 5.25% to 5.50%, and there would only be a 25 basis point interest rate cut once this year, the market's optimism turned cold. In the afternoon of that day, the market as a whole showed a downward trend, indicating that the market price fluctuation mainly revolves around the future outcome of this interest rate cut expectation.

Although the overall cryptocurrency market has been relatively quiet recently, in the context of general decline, Ethereum ecosystem tokens still show some price elasticity and can quickly lead the market when it stabilizes.

Specific to the relevant currencies, the most noticeable pump is in the re-staking projects Ether.fi (ETHFI) and Renzo (RZO). Especially Ether.fi, as a leading re-staking project, with a TVL as high as 61 billion US dollars. After Consensys revealed that the SEC ended its investigation into ETH 2.0 without bringing any securities charges, the coin price surged by over 7%.

Another coin worth following is Lido (LDO). As a top LSD project in the ETH ecosystem, its TVL (total value locked) is as high as 33 billion US dollars, but its tokens are less than 2 billion US dollars, and it has been in a long-term undervalued state. Just on the day of writing, LDO quickly rebounded after passive probing, showing relatively strong price performance.

In addition, we can see that ssv.network (SSV) as a leading project in the Ethereum staking infrastructure, its decentralized nature allows anyone to participate in ETH staking easily and at scale. According to official website data, the total TVL of SSV has exceeded 2.7 billion US dollars, with over 24,000 validating nodes, demonstrating its strong market influence and wide application prospects.

After the ETF is launched, will Ethereum follow the same path as Bitcoin, first falling and then rising?

Obviously, the launch of the Spot Ethereum ETF will greatly simplify the process for investors to access Ethereum, thereby driving its market demand growth. It is expected that this move will also attract institutional capital inflows, which is a long-term favorable information for the Ethereum ecosystem and the entire encryption market.

For example, analyst Eric Balchunas expects that the Ethereum spot ETF may attract 10% to 15% of the assets obtained by the Bitcoin spot ETF, i.e. 50 billion to 80 billion dollars.

Asset management company VanEck is optimistic about the future of Ethereum, predicting that its price will reach $22,000 by 2030. This prediction is based on Ethereum's projected $66 billion in free cash flow over the next decade. At the same time, Ethereum's rich decentralized application (DApp) ecosystem adds unique technological advantages and has attracted the attention of technology and stock investors.

However, it is worth noting that, as mentioned earlier, the market's response to this news did not continue the strong upward momentum seen on May 20th, but instead showed signs of weakness in the absence of other catalysts.

Figure 2 Source: Gate.io

There may be several reasons behind this:

First of all, the official launch of the Spot ETF will take some time. Although the Ethereum Spot ETF has been approved, its official listing still needs to go through a series of processes and conditions, including the submission of S-1 documents, which will take time to promote. Therefore, before the Spot ETF is officially listed, people have relatively conservative expectations of buying Ethereum like betting on Bitcoin in the market.

Secondly, the impact of market sentiment cannot be ignored, especially the recent hawkish stance of the Federal Reserve's monetary policy, which still leads to insufficient liquidity in the encryption market and naturally lacks internal pump power.

Moreover, investors may take Bitcoin's price trend as a reference to bearish Ethereum in the short term. For example, we saw a drop in price for nearly half a month after the spot Bitcoin ETF was formally approved, with a decline of more than 21%. The direct cause was Grayscale's GBTC selling off sharply in a short period of time, and this historical memory is likely to be repeated in Ethereum's price performance.

Figure 3 Source: Gate.io

Altcoins are falling, can ETF without staking mechanism really bring a bull market?

In fact, the launch of the Ethereum ETF in the spot market has profound implications for Ethereum itself. On the one hand, it will bring more market demand and investor attention to Ethereum, further driving up its price. We have observed that after the ETF made positive progress, the price of Ethereum showed strong upward momentum in the short term, breaking through key resistance levels. On the other hand, the launch of the ETF will also bring more application scenarios and ecosystem development to Ethereum, further consolidating its leading position in the cryptocurrency field.

In the long run, as ETFs are approved in countries like the United States, other countries/regions may follow suit and explore the launch of similar cryptocurrency products, which will further promote the globalization process of the cryptocurrency market and facilitate capital flows and cooperation between different countries and regions.

However, while investors are focusing on the opportunities brought by the Ethereum ETF, they also need to be wary of potential risks. Just as of the writing date, the encryption market has experienced dramatic fluctuations, with many altcoins falling by as much as 20%, and Ethereum, which surged from a high point of $3980 due to the ETF hype, once fell to around $3350, with a 24-hour decline of 3.32%.

Figure 4 Source: SoSo Value

It can be seen that, despite the long-term favorable information of spot ETFs on Ethereum and its liquidity pledging sector, we still need to guard against the leverage risk brought by short-term fluctuations.

In short, with the promotion of Ethereum ETF, other favorable factors are also providing support for the cryptocurrency market, such as the Prague upgrade at the end of the year, the inflow of funds brought by interest rate expectations, and other policy favorable factors that may be brought by the US election. We are also pleased to see the formal recognition of regulatory agencies for digital assets such as Ethereum, and the entire crypto market will mature in the cycle of ups and downs.

Author: Carl Y.

This article represents only the author's point of view and does not constitute any trading advice.

This article is original content, and the copyright belongs to Gate.io. If you need to reprint, please indicate the author and source, otherwise legal responsibility will be pursued.