Ether (ETH) price may be on the verge of the most important event in terms of the spot ETH ETF that integrates altcoins with traditional financial markets, but the price is not reacting as expected. In fact, on June 24, Ethereum reached its lowest level in over a month, falling to $3,250. ETH eventually regained $3,400 support on June 25, but both on-chain and derivatives indicators suggest limited upside potential.
Analysts say the launch of a spot ETH ETF could be disappointing.
Some analysts believe the timing of the launch of an Ethereum spot exchange-traded fund (ETF) is unlikely to result in significant net inflows in current market conditions. Despite regulators dropping their investigation into prominent Ethereum ecosystem company Consensys and putting Ethereum staking’s potential securities classification on hold, the broader economic environment remains challenging.
Bloomberg ETF analysts Eric Balchunas and James Seyffart expect the Ethereum ETF could attract between $1 billion and $2 billion in funding in the first few weeks. Likewise, Stephen Richardson, managing director of financial markets at Fireblocks, told Cointelegraph that he expects inflows to drop significantly upon the launch of the Ethereum ETF.
Markus Thielen, head of research at 10x Research, pointed out that the revenue generated by Ethereum is “minor” compared to its market capitalization. This indicates that the asset does not currently represent a “viable and sufficiently cash-flow generating investment.” Thielen also pointed out that the yield of Ether staking is still lower than that of US Treasury bonds.
Despite the more favorable cryptocurrency regulatory environment in the United States, it is important not to overlook macroeconomic trends. The US Conference Board said on the 25th that the consumer confidence index fell from 101.3 the previous month to 100.4, indicating that households are concerned about inflation, according to Yahoo Finance.
Also on June 25, Federal Reserve President Michelle Bowman reiterated that interest rates would remain higher “for some time,” as reported by Yahoo Finance. Bowman emphasized that inflation is still “rising” and that easing financial conditions or additional fiscal stimulus could increase inflation further. The Fed’s mid-term outlook is to keep bond investments attractive with just one rate cut before the end of the year.
High Ethereum network fees and reduced ETH leverage demand
The Ethereum network faces its own challenges, including relatively high gas fees, which amount to about $3 per transaction at the base layer. This issue partially explains why competing blockchains such as BNB Chain (BNB) and Solana (SOL) have been able to gain significant volume.
Despite these challenges, Ethereum remains the clear leader in total value locked (TVL) and decentralized application volume. However, according to DappRadar, there has been no increase in demand over the past seven days, while competitors such as Solana and Aptos have seen an increase in activity and deposits. Ethereum’s layer-2 ecosystem is powerful, but the challenges posed by these incumbents should not be overlooked.
To understand the sentiment of professional traders on Ether, you should examine the ETH futures indicator. Ethereum futures premiums represent the difference between monthly contracts in the derivatives market and spot levels on common exchanges. Typically, an annual premium of 5% to 10% (base) is expected to compensate for the extended settlement period.
Ethereum futures premiums fell below the 10% threshold on June 21 and have remained in a neutral range since. This change represents a change in trend after five weeks of bullish sentiment and is especially concerning considering that U.S. Securities and Exchange Commission Chairman Gary Gensler has confirmed the launch of an Ethereum spot ETF by September.
As Markus Thielen points out, it’s difficult to justify Ethereum’s token valuation given that the network’s revenue is only $23.9 million per share, based on DefiLlama data. In comparison, Tron and Solana, which have much smaller deposits, generate $8.8 million and $9.8 million per day, respectively. Therefore, if analysts’ expectations of low spot ETF inflows are confirmed, it seems unlikely that Ether will surpass $3,700 in the near term.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.