Ethereum-ETF: A New Era or Just Another Market Tool?

On July 23, spot Ethereum-ETFs were launched in the US by nine issuers. Trading volumes reached $1 billion on the first and second days. In a comment for ForkLog, trader and author of the Telegram channel Coen+, Vladimir Cohen, discussed the significance of the product and the current market state.

A Familiar Scenario?

The launch of ETH-ETF was a disappointment for many traders who went long and bought call options before trading began, the expert noted.

On July 24, Ethereum fell below $3200 amid a net outflow of $133.2 million from exchange-traded funds. The inflow into “new” products was insufficient to offset the $326.9 million withdrawn by clients from the Grayscale Ethereum Trust (ETHE).

The rest of the market, including Bitcoin, which failed to hold $65,000, also turned “red.”

“Traditionally, [the correction] occurred during the Asian session when American traders were already resting. Once again, the golden rule worked: sell on the news. Inflows into eight ETFs were offset by sales of ETHE, whose clients were locked in for two years due to a large discount,” Cohen noted.

A similar situation was observed during the launch of spot Bitcoin-ETFs in January. Therefore, the interlocutor believes that inflows into Ethereum funds will resume, and the instruments themselves will be in high demand.

However, Cohen believes trading volumes will be lower due to the lesser popularity of the second-largest cryptocurrency by market capitalization. On the other hand, this is an important step for the development of the crypto industry, as Ethereum “has more applications in the real sector as a platform with diverse functions,” he added.

“Essentially, [Ethereum] is a fintech company, and that’s why it has a high correlation with Nasdaq. It’s crucial for the asset to gain real application and integration in the traditional sector. […] For example, if Amazon or Google start using smart contracts on Ethereum, it will be a significant basis for the asset’s growth,” the expert emphasized.

Reasons for the Decline

Cohen pointed to the dynamics of the Nasdaq 100 and S&P 500 indices, which have been rising almost without pullbacks since June 1, constantly updating historical highs.

The main catalyst, according to the trader, was the “magic six” — Apple, Amazon, Google, Microsoft, Nvidia, and Meta. However, by many parameters, the stocks of these companies were significantly overvalued, he clarified.

“The catalyst for the decline was the start of the earnings season. Here, too, the rule worked: sell on the news. Major players pushed the market up to unload on the crowd, promoting the narrative of constant growth,” Cohen stated.

The expert pointed out that Bitcoin faced a similar situation to the stock market — corrections were short-term and insignificant, considering this year’s growth rates.

According to Cohen’s observations, the interest of major players in Bitcoin is concentrated in the $40,000-50,000 range, and for Ethereum — in the $2200-2800 range. If a correction occurs to these levels, we will see a new strong growth phase with updates to historical highs, while a distribution phase is currently underway, the interlocutor emphasized.

Negative and Positive Factors

The main reason for optimism in the markets was the steady trend of declining inflation and greater investor confidence in the imminent reduction of Fed rates, Cohen continued.

Among the less obvious factors, the trader highlighted the attempt on Donald Trump, which increased his chances of winning the US presidential election and gave a significant bullish impulse:

“It was under Trump that the Fed poured $3.5 trillion of cheap liquidity into the markets, ensuring a powerful rally. However, after Joe Biden withdrew from the presidential race, the former president’s chances of winning decreased.”

Consequently, uncertainty in the results led to a decrease in investor optimism, Cohen explained. Additionally, this week saw a trend of rising yields on US Treasury bonds and a strengthening dollar.

The expert noted that the sale of Mt.Gox assets is proceeding slowly, but assets from bankrupt Genesis and BlockFi are also entering the market. In his opinion, their holders are “gradually losing patience.”

“According to statistics, August and September are the weakest months for the stock sector, and in the crypto market, this is often the season of sales. Therefore, a decline is most likely in the near future. Perhaps Trump’s bold statements at the Bitcoin 2024 conference in Nashville will give a bullish impulse to the market, but it will be short-term and used for sales by major players,” the trader suggested.

Analysts at QCP Capital have noted growing concerns in the Bitcoin options market about the resumption of a downward trend.

10x Research also saw “signs of new problems” following the Ethereum sell-off.