Ethereum (ETH) price surged 25% from May 20 to May 21, reaching a nine-week high of $3,840. But despite growing confidence in the approval of a U.S. spot Ether exchange-traded fund (ETF) by the May 23 deadline, the altcoin has faced resistance. This is when regulators decide on asset manager VanEck’s application. Traders are now pondering whether a stabilization around $3,750 means that Ether ETF approval is already priced in.
SEC decision on spot ETH ETF is pending.
Analysts’ approval expectations rose after the U.S. Securities and Exchange Commission (SEC) contacted the NYSE and Nasdaq to update their 19b-4 filings for the proposed spot Ether ETF. Cryptocurrency lawyer Jake Chervinsky says the sudden interest from regulators is likely politically motivated, as US President Joe Biden may want to appeal to cryptocurrency supporters. I did.
However, the SEC has yet to take an official position and will vote on the matter with a panel of five members. Two of them are particularly cryptocurrency advocates: Hester Peirce and Mark Uyeda. Caroline Crenshaw, on the other hand, is known to be one of her most vocal critics at the SEC regarding the cryptocurrency sector, particularly its inadequate regulation and the risks of fraud and manipulation.
Investors may be assessing the potential impact on the price of Ethereum based on Bitcoin (BTC)’s trajectory since the approval of a U.S. spot ETF in January. Bitcoin rose 35% in the 50 days following the announcement, rising from $46,356 to $62,416 by March 1. It is debatable whether demand for the Ethereum ETF will ever reach the $7.37 billion inflows that Bitcoin experienced in its first 50 days, especially given the extreme trading volumes. Competition from Grayscale’s $28.7 billion GBTC fund.
Considering that analysts consider the odds of Ether’s ETF being approved to be 75%, the recent 25% rise in ETH price is consistent with Bitcoin’s trend following the ETF’s approval. This does not mean that the price of Ether will be capped at $3,840, but it does mean that the likelihood of acceptance is in line with market expectations. Similarly, Bitcoin’s rise was not limited to a 35% rise, reaching an all-time high of $73,750 two weeks later. However, as time passes after these events occur, external factors become increasingly influential in the market.
For example, the S&P 500 index hit an all-time high on March 12, and the price of WTI finally surpassed $80 on March 14, four months later. Bitcoin’s approval of a U.S. spot ETF coincided with a particularly favorable time for the risky asset. It is unclear how Bitcoin would have performed under different market conditions, but it would be simplistic to assume a similar trajectory for Ether.
Related: Strong Bitcoin ETF inflows boost BTC stability, Bitfinex says.
Ether derivatives indicators are far from euphoric.
To gauge where professional traders stand, it is useful to examine the Ether futures market. Typically, ETH futures should show a premium of 5% to 10% per year, a market condition known as contango that is common in financial markets.
Data shows that prior to May 20, major investors and market makers were not confident in Ether’s performance, at least not enough to justify a premium of more than 10% per year for leveraged long positions. The jump to a 15% premium shows a moderate risk appetite among bulls, but it is still a far cry from the 20-27% range in March.
Indicators from derivatives suggest that Ether traders are either overly optimistic or completely under-priced in the odds of approval for a U.S. spot Ether ETF. For ETH bears, the potential negative impact of a rejection is greatly reduced as there is no excessive use of leverage among buyers. Ultimately, Ether’s current price does not reflect full expectations of acceptance, indicating the potential for further profits.
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.