Ethereum ETFs Launched — Why is ETH's Price Dropping?
The well anticipated launch of the Ethereum (ETH) spot ETFs in the U.S. has not yet led to a significant price increase for ETH, and in fact the price has declined since the ETFs were approved and launched.
What’s happening with Ethereum? - A Technical Analysis
Before discussing about the major factors that triggered the bearish downturn, it is important to analyse the technical aspects and price action of Ethereum.
After reaching a 2024 all-time high (ATH) of $4093.92, ETH experienced a bearish divergence. This was followed by the formation of a falling wedge pattern, which broke out following news of a potential ETH ETF approval.
Despite attempting to retest the aforementioned ATH, ETH fell, forming a parallel regression channel. It briefly broke below the 200-day EMA support level, raising concerns. However, ETH quickly recovered and is currently retesting the 200-day EMA support, showing signs of a bounce back. If this support level fails, ETH may revisit its major demand zone between $2844 and $2923.
Traditional indicators show mixed signals. The MACD is turning bearish, while the RSI remains neutral. The near-term trend will likely depend on market sentiment related to the potential ETH ETF inflow/outflow. If ETH holds the support levels, a bullish divergence could be on the horizon
Now let us examine the major events that triggered the correction of Ethereum:
Sell-the-News Event
The approval and launch of the ETFs may have triggered a classic "sell-the-news" event, where investors sell their ETH holdings to lock in profits after the long-anticipated approval. With the ETH reaching $3,500 in July, some investors likely wanted to capitalize on the euphoria around the ETF launch by selling. We saw a huge momentum candle before the ETH ETF news came out. The lowered impact on the prices
Outflows from Grayscale Ethereum Trust
The Grayscale Ethereum Trust (ETHE) experienced large outflows of $484 million on the first day of ETF trading, as investors redeemed their ETHE shares. This selling pressure may have offset the buying demand from the new ETFs.
Liquidation of Long Positions
Over $94 million in long ETH positions were liquidated in the 24 hours after the ETFs launched, indicating traders who were betting on an ETH price increase got squeezed out. This likely exacerbated the selling pressure.
Broader Market Downturn
The decline in ETH price coincided with a broader downturn in the crypto and US- European stock markets, with Bitcoin dropping 2.5% and the Nasdaq having its worst day since late 2022. This suggests macroeconomic factors were also weighing on ETH.
Delayed Inflows
While the ETFs attracted $107 million in net inflows on launch day, this was only 16% of the $655 million Bitcoin ETFs attracted on their first day. The full impact of ETF inflows may take more time to materialize.
Stagnant Fundamentals
Some analysts argue Ethereum's fundamentals have been stagnant or declining, making it more vulnerable to selling pressure compared to Bitcoin The ongoing Mt. Gox repayments and distributions may also be weighing on the market.
In summary, the combination of a "sell-the-news" event, outflows from ETHE, liquidations, macroeconomic factors, and delayed inflows likely all contributed to the decline in ETH price despite the successful ETF launches. However, analysts remain optimistic that ETH will resume its upward trend in the coming weeks.
What’s happening with Ethereum? - A Technical Analysis
Before discussing about the major factors that triggered the bearish downturn, it is important to analyse the technical aspects and price action of Ethereum.
After reaching a 2024 all-time high (ATH) of $4093.92, ETH experienced a bearish divergence. This was followed by the formation of a falling wedge pattern, which broke out following news of a potential ETH ETF approval.
Despite attempting to retest the aforementioned ATH, ETH fell, forming a parallel regression channel. It briefly broke below the 200-day EMA support level, raising concerns. However, ETH quickly recovered and is currently retesting the 200-day EMA support, showing signs of a bounce back. If this support level fails, ETH may revisit its major demand zone between $2844 and $2923.
Traditional indicators show mixed signals. The MACD is turning bearish, while the RSI remains neutral. The near-term trend will likely depend on market sentiment related to the potential ETH ETF inflow/outflow. If ETH holds the support levels, a bullish divergence could be on the horizon
Now let us examine the major events that triggered the correction of Ethereum:
Sell-the-News Event
The approval and launch of the ETFs may have triggered a classic "sell-the-news" event, where investors sell their ETH holdings to lock in profits after the long-anticipated approval. With the ETH reaching $3,500 in July, some investors likely wanted to capitalize on the euphoria around the ETF launch by selling. We saw a huge momentum candle before the ETH ETF news came out. The lowered impact on the prices
Outflows from Grayscale Ethereum Trust
The Grayscale Ethereum Trust (ETHE) experienced large outflows of $484 million on the first day of ETF trading, as investors redeemed their ETHE shares. This selling pressure may have offset the buying demand from the new ETFs.
Liquidation of Long Positions
Over $94 million in long ETH positions were liquidated in the 24 hours after the ETFs launched, indicating traders who were betting on an ETH price increase got squeezed out. This likely exacerbated the selling pressure.
Broader Market Downturn
The decline in ETH price coincided with a broader downturn in the crypto and US- European stock markets, with Bitcoin dropping 2.5% and the Nasdaq having its worst day since late 2022. This suggests macroeconomic factors were also weighing on ETH.
Delayed Inflows
While the ETFs attracted $107 million in net inflows on launch day, this was only 16% of the $655 million Bitcoin ETFs attracted on their first day. The full impact of ETF inflows may take more time to materialize.
Stagnant Fundamentals
Some analysts argue Ethereum's fundamentals have been stagnant or declining, making it more vulnerable to selling pressure compared to Bitcoin The ongoing Mt. Gox repayments and distributions may also be weighing on the market.
In summary, the combination of a "sell-the-news" event, outflows from ETHE, liquidations, macroeconomic factors, and delayed inflows likely all contributed to the decline in ETH price despite the successful ETF launches. However, analysts remain optimistic that ETH will resume its upward trend in the coming weeks.
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