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Is ETH headed for a bull run? From Investing.com
Last week the US Securities and Exchange Commission (SEC) approved the first spot exchange traded funds (ETFs) (ETH). The price of Ethereum has surged in anticipation of this decision with cryptocurrency experts now saying that the bull run has just begun.
The wave of positive regulatory news didn’t stop there: The House of Representatives passed its first cryptocurrency bill and the UK gave the green light to exchange-traded products.
Signs that an approval was imminent emerged earlier in the week, when several exchanges amended their documents to exclude staking.
According to the latest analysis from Kaiko Research, the market has gradually priced in ETF approval over the past month amid growing uncertainty over ETH’s regulatory status.
“With these approvals, the SEC has implicitly stated that ETH (without staking) is a commodity rather than a security. This is not just about access to ETH, but has significant and likely positive implications for how all similar tokens will be regulated in the US regarding trading, custody, transfer, etc.,” Kaiko Research added.
ETH’s implied volatility for the nearest expiration increased from less than 60% on May 20 to nearly 90% on May 22 before retreating by the end of the week. This dramatic shift in sentiment was also evident in the derivatives markets.
Ethereum price hit a 2-month high on Monday as bulls try to break out of the strong resistance zone surrounding the $4,000 level.
“For a long time, Ethereum remained confined between narratives, often chasing trends. We are finally seeing its relative market share catch up to its fundamentals. Bull runs are fueled by attention, inflows and narratives, and Ethereum has scored on all three fronts lately,” Kiril Nikolov, DeFi Strategist at Nexo, told Investing.com.
Nikolov predicts that “inflows will be at least proportional to the market capitalization of the asset in terms of size, i.e. around 30-40% of those achieved by spot ETFs in the US”
“As long as inflows exceed Grayscale outflows, the rest of the year could be incredible for Ethereum.”
A break above the 2024 high would open the door for a quick move towards the 2021 record high, set in 2021. The next resistance zone lies near the $6,000 level.
Open interest hits a new all-time high
In just three days, ETH perpetual futures funding rates surged from the lowest level in over a year to a multi-month high. Open interest also hit an all-time high of $11 billion, suggesting strong capital inflows into the sector.
The ETH/BTC ratio, which measures the relative performance of the two assets, rose from 0.044 to 0.055, although it remains below its February highs. The rally was broad-based, with US and offshore spot markets seeing strong net buying starting May 21st. Offshore exchanges had seen net selling until then.
Looking ahead, the launch of ETH ETFs could bring selling pressure from likely outflows or redemptions due to Grayscale’s ETHE, which has traded at a discount of between 6% and 26% over the past three months.
ETHE currently holds over $11 billion in assets under management, making it the largest ETH investment vehicle. During the first month of bitcoin ETF trading, GBTC saw outflows of $6.5 billion, about 23% of its assets under management since launch.
If a similar magnitude of outflows occurred with ETHE, this would translate to $110 million in average daily outflows, or 30% of ETH’s average daily volume on Coinbase (NASDAQ:). However, GBTC outflows were offset and surpassed by inflows from other BTC ETFs by the end of January.
“The overall impact on the ETHE redemption market is still uncertain, especially considering the lackluster launch of Hong Kong ETFs,” Kaiko Research said.
“Furthermore, ETH market depth on centralized exchanges is around $226 million, still 42% below average pre-FTX levels, and only 40% is focused on US exchanges compared to around 50% early 2023.”