Ether's Moonwalk: ETFs Set to Propel Ethereum
Executive Summary
- Market trading color: Bitcoin sentiment oversold, short-term holders underwater, expected ETH outperformance heading into ETF
- Theme of the week – Positive catalysts and indicators for Ethereum
- Sector commentary: Bitcoin and Ethereum lead market, with positive ETF developments and strong on-chain activity
Market Trading Color (Nolan Aibel)
It is no secret this has been a volatile week in the crypto space as $BTC entered the week around $60,000, sank 8% below $53,500, and has since nearly retraced the move down as the June CPI inflation rate came in at 3.0%, below expectations of 3.1%. Core CPI also fell to 3.3%, below expectations of 3.4%. Flipping $60,000 here would be bullish; however, spot asks are appearing above $59,000. The volatility earlier in the week could largely be attributed to a small German state called Saxony beginning to sell a large majority of the 49,857 ($3B) Bitcoin they seized from the operator Movie2k.to, a website found guilty of money laundering. At the time of writing, they’ve sold over 39,730 tokens, over 75% of their total supply, and now hold only $593M in BTC. This, coupled with Mt. Gox distributions known to begin in July, has been a large supply overhang for $BTC and essentially tanked morale within the crypto ecosystem of late. The Fear and Greed index has been firmly planted in the “Fear” range and currently screens at 28, the lowest levels since January '23. Alongside this, we mentioned in our daily market commentary on Monday that RSI touched 30 and the “oversold” range again.
The good news, and what has slightly flipped sentiment from very bearish to neutral (aside from this positive CPI print and expectation for a September rate cut), has been the realization that the market has matured and could withstand these large sell orders that once petrified participants. While Germany has been dumping this BTC (not by choice), US ETFs have scooped up $801.7M worth of BTC over the past four trading days. Yes, there still is the Mt. Gox overhang; however, we believe the effects of this selling will be relatively muted compared to the noise seen on Twitter. Yesterday, the estate moved $2.7B worth of $BTC for a $4.60 fee—a great display of the power of blockchain.
As a result of the recent price action, one metric worth monitoring is the extent to which short-term holders are experiencing losses. According to Glassnode, and shown in the chart below, 2.9M BTC, or 83% of short-term holders, are currently at a loss. This metric becomes significant after a 90-day holding period. Currently, these holders have been experiencing losses for an additional 20 days beyond this 90-day period. In contrast, during Q2-Q3 of 2021, we observed a more drastic scenario where short-term holders experienced consecutive losses for 70 days before the ’22 bear market. It is crucial for these short-term holders to return to profitability to improve market sentiment.
Source: Glassnode
ETHBTC has been fighting to turn positive, still down 1.90% on the week despite all the supply overhang for BTC and the upcoming ETF approval. While the two have moved almost in tandem, we believe the market is failing to price in the effects the ETFs will have on condensing supply (% available on exchange is now at 10.1%) and, in turn, positive price action. $ETH is down nearly 25% since the initial announcement that ETFs would eventually be approved. We could see a full repricing toward local highs of $4,000. ETH has seen a sharper spike in volatility of late due to the exchange of S-1 amendments. ETH implied volatility is 62 vs BTC at 49. ETH option open interest is also picking up in ladder months, as it is usually concentrated in the near term.
Source: TheTie
Ethereum ETF Progress
Ethereum has been at the forefront of conversations this week, primarily due to developments surrounding Ethereum ETFs. Several prominent asset managers, including VanEck, Grayscale, Fidelity, BlackRock, 21Shares, Franklin Templeton, and Bitwise, have filed amended S-1 registration statements with the SEC following the regulator's July 8 deadline. These filings are an important step toward the launch of spot ETH ETFs, expected to commence trading soon.
Analysts predict the SEC will approve these drafts within the next two weeks, as most preparatory work has been completed. The SEC had already approved the issuers' spot ETH ETF 19b-4 applications on May 23, with the current focus on finalizing the S-1 registrations. Despite the catalyst for Ethereum, the market has been trading downwards over the past week and we wanted to highlight some of the positive news surrounding Ethereum.
Low Exchange Supply
The attached graph from CryptoQuant highlights the relationship between Ethereum's price and its exchange reserves across all exchanges. Over the past year, the exchange reserves have been steadily declining, reaching a low of 17.1 million ETH. To provide more context, the current total supply of ETH is 120,202,928. Given the exchange reserves of 17.1 million ETH, approximately 10.1% of the total supply is currently held on exchanges. This decline in exchange reserves, coupled with the current price action, suggests a reduced likelihood of major selloffs and supports the narrative of increasing scarcity or ultrasound money. The graph shows that Ethereum's price generally trends upwards as exchange reserves decrease, indicating strong accumulation by long-term holders, despite recent news about some ICO participants selling $78 million through various centralized exchanges.
Source: CryptoQuant
Additionally, Ethereum often exhibits deflationary characteristics, which creates additional buying pressure. This deflationary aspect enhances its appeal as a long-term investment. With the implementation of EIP-1559, a portion of transaction fees is burned, effectively reducing the circulating supply over time. As demand for Ethereum and its various use cases continues to grow, the combination of reduced supply and increasing utility reinforces its value proposition and positions it as a compelling asset for investors seeking both stability and growth potential.
Absence of Major Holders Selling
- Germany: Unlike their Bitcoin holdings, the German government has no substantial ETH holdings. The German government has been actively selling its Bitcoin holdings, transferring 24,304 BTC (approximately $1.44 billion) since June 19, 2024. This contrasts with their ETH position, where no significant holdings or sales have been reported.
Source: x.com/lookonchain, CoinMarketCap
- Mt. Gox: The defunct exchange holds no ETH, eliminating another potential source of sell pressure.
- US Government: The US government only has $154M worth of ETH compared to Ethereum’s 24h volume of $16B, reducing potential market impacts from major selloffs if they did decide to sell.
Staking and Network Security
The percentage of ETH staked has steadily increased, as shown in the graph below. As of July 2024, nearly 28% of the total ETH supply is staked, indicating growing confidence in the network's long-term potential. This growing trend in staking supports the network's security and stability while reducing the circulating supply, which can contribute to upward price pressure. The increase in staked ETH also reflects the expanding use cases for Ethereum, including its role in decentralized finance (DeFi), NFTs, and other applications within its ecosystem.
Source: Theblock.co
Grayscale Ethereum Trust (ETHE) Trading Near Par
The Grayscale Ethereum Trust (ETHE) is currently trading almost at par with its net asset value (NAV), reflecting increased investor confidence and demand. This shift from a historical discount to near par value indicates a strong market sentiment and expectations of positive future performance. Over the past year, the discount to NAV for ETHE has narrowed from over -30% to just -1.48% as of July 2024, marking a significant improvement and reflecting increased investor interest and confidence. This trend accelerated with the SEC's approval of several spot Ethereum ETFs in May 2024.
Source: ycharts.com
Before the launch of the Bitcoin ETF, the Grayscale Bitcoin Trust (GBTC) experienced significant fluctuations in its trading discount to NAV. At its peak, GBTC traded at a steep discount, reaching as low as -49% in early 2023. This discount reflected the market's concerns over liquidity, redemption mechanisms, and the overall regulatory environment for Bitcoin investment products. However, the anticipation of a spot Bitcoin ETF led to a narrowing of this discount as investors began to position themselves for the potential benefits of a more efficient and accessible investment vehicle. In the months leading up to the ETF's approval, GBTC saw substantial inflows as investors speculated on its conversion to an ETF and the subsequent reduction in trading discount. This influx of capital and the improving market sentiment mirrored the current trends observed with ETHE, underscoring the market's preference for more transparent and liquid investment products.
On Chain Activity
Ethereum boasts the largest ecosystem among cryptocurrencies. Unique blob submitters have been gradually increasing since May, from 32 submitters back when the price of ETH was $2,970 up to 96 now. The increase count in blob transactions (post launch where blobs peaked around 1,400) indicates continued activity on Layer 2 solutions. Monthly active addresses are at 7.5M from the lows of 6.2M a few weeks ago, back to the highs from April of this year. The number of new contracts deployed, including other EVM chains, has been up and to the right since April 10th going from 4.5k up to 6.7k. On-chain participants are still less active from months past, which has been seen as a signal of market bottoms. Recently, gwei, the unit of gas fees in the Ethereum network, has been at one year lows.
Source: Highcharts.com
Overall, Ethereum's ecosystem is showing robust growth and resilience, supported by positive developments in ETF approvals, decreasing exchange supply, increased staking, and consistent on-chain activity. These factors collectively strengthen Ethereum's position as a leading cryptocurrency.
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): Bitcoin Little-Changed Above $57K as Fed Chair Powell Testifies to Congress (link)
- Bitcoin ($BTC): Has bitcoin carved out the low? (link)
- Bitcoin ($BTC): Bitcoin sees surge in new addresses as its price drops (link)
- Bitcoin ($BTC): Crypto Crash Pushes Fear & Greed Index to Lowest Since Bitcoin Traded at $17K in Early 2023 (link)
- Bitcoin ($BTC): Bullish Bitcoin Drivers Remain in Play Despite Germany's Sales, Mt. Gox Reimbursements (link)
- Bitcoin Cash ($BCH): Bitcoin Cash's Mt. Gox-Led Sell-Off Is Amplified by Poor Liquidity (link)
- Ethereum ($ETH): Ethereum leads crypto majors in rally amid Fed Congressional testimony (link)
- Ethereum ($ETH): Why is Ether (ETH) price up today? (link)
- TON Blockchain ($TON); Polygon ($MATIC): TON Blockchain Ecosystem to Get New Layer-2 Network Based on Polygon Tech (link)
- Altcoins: CoinDesk 20 Performance Update: ICP and ETH Lead Gains as Index Climbs 1.9% (link)
- Altcoins: AI Tokens Outperform CoinDesk 20 Index Tuesday Despite Clouds Forming Over Industry (link)
- DeFi
- Op-Ed: MEV Has Spread to Bitcoin, in Subtler Forms Than on Ethereum (link)
- Decentralized Crypto Exchange WOOFi Uses Gaming Style NFTs to Boost DeFi (link)
- Blockchain Startup Rome Raises $9M to Serve Ethereum Layer-2s Through Solana (link)
- MetaMask Developer Consensys Releases New Toolkit for 'Seamless Onboarding' (link)
- Ethereum Layer 2 rollups see yearly low in unique depositors, down 33% from last week (link)
- Web3 / AI / NFTs
- Protocol Village: Union Adds Support for Arbitrum, Connecting With IBC Chains, Other L2s (link)
- Sam Altman’s Layer-2 Blockchain Project, World Chain, Opens to Developers (link)
- Storj Acquires Cloud Computing Firm Valdi; Terms Undisclosed (link)
- Crypto Wallet Provider Exodus Aims to Solve Web3's User-Friendly Issue With 'Passkeys Wallet' (link)
- Top Crypto VC Says Ex-General Partner Made Undisclosed Side Deal With Portfolio Company (link)
- RWA / Tokenization / Metaverse / Gaming
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- Crypto needs to remove friction for the next billion users: Coinbase (link)
- Stablecoins, Miners Outperform as $18B Gets Wiped Out From Crypto in June: JPMorgan (link)
- It's Not Germany Selling Bitcoin. It's One of Its States and It Has No Choice. (link)
- Bitcoin ETF Traders Buy the Dip With Nearly $300M Inflows (link)
- Australia’s main stock exchange to get second spot Bitcoin ETF (link)
- What Still Needs to Happen Before Spot Ether ETFs Can Trade (link)
- Ether ETF Fee Race Begins as Invesco Reveals 0.25% Charge, Slightly Higher Than VanEck (link)
- VanEck, 21Shares Solana ETF Plan Confirmed in Cboe Filing (link)
- Analyst tips Solana ETF deadline for mid-March after new filings (link)
- Drop in Bitcoin Mining Difficulty 'Comparable to FTX Collapse,' CryptoQuant Says (link)
- Hut 8 expands mining operations with power deal in West Texas (link)
- Core Scientific trades debt for equity, reduces $260M debt load (link)
- Bitfarms announces new CEO, Riot launches campaign as corporate dispute escalates (link)
- Standard Chartered-backed Zodia Markets in talks to acquire Alan Howard-linked investment company: report (link)
- Ex-Valkyrie CEO Leah Wald to Take Reins of Crypto Investment Firm Cypherpunk (link)
- Trump's Official Republican Platform Pledges to Halt Crypto 'Crackdown' (link)
- Former FTX Execs Nishad Singh, Gary Wang to Be Sentenced Later This Year (link)
