- Ethereum’s recent retracement follows a significant price rally, with ETF approvals seen as bullish.
- Market volatility and trading activity suggest a complex, potentially bullish future for Ethereum.
Ethereum [ETH]a leading cryptocurrency and blockchain platform, has seen significant market activity in recent weeks.
After a significant increase of around 31.5% in two weeks to over $3,900, Ethereum made a slight comeback to settle around $3,845.
This fluctuation comes amid broader market movements and regulatory developments that may affect the asset’s future trajectory.
Cryptocurrency research company Kaiko has bring light on these developments, particularly with a focus on potential impacts Approval by the US Securities and Exchange Commission (SEC). spot Ethereum ETF.
This approval is seen as a positive step for Ethereum, despite potential short-term market adjustments.
The implications of such regulatory improvements go beyond immediate price effects, potentially shaping Ethereum’s position in financial markets and significantly influencing investor sentiment.
Ethereum: Market Reaction
Kaiko’s analysis reveals that the introduction of an Ethereum ETF could initially trigger selling pressure due to potential outflows from existing investment vehicles such as Grayscale’s Ethereum Trust (ETHE).
The firm currently manages over $11 billion in assets.
Historical data from similar scenarios indicated that such outflows could significantly affect daily trading volumes.
However, as witnessed with Bitcoin ETFs, the initial outflows were eventually offset by subsequent inflows, suggesting a possible stabilization after the ETF’s launch.
Will Cai, head of indices at Kaiko, highlighted the broader implications of the SEC decision, noting that it is a declaration of Ethereum’s status as a commodity rather than a security.
This classification not only affects the trading and custody of Ethereum, but also sets a precedent for the regulation of similar tokens in the US, which is likely to promote a more stable regulatory environment.
Meanwhile, according to Kaiko, Ethereum market depth on centralized exchanges was around $226 million at the time of the report – down 42% from pre-FTX collapse levels.
Only 40% of this is aimed at US exchanges, down from around 50% seen at the start of 2023.
Source: Kaiko
The research firm noted:
“Overall, while the inflows will disappoint in the short term, the approval has important implications for ETH as an asset, as it removes some of the regulatory uncertainty that has weighed on ETH’s performance over the past year.”
Insights into volatility
Other insights from Kaiko highlighted Ethereum’s volatility trends. Notably, Ethereum’s implied volatility increased dramatically in late May, indicating increased market activity and investor interest.
This was accompanied by an inversion in the volatility pattern, with short-term volatility exceeding long-term expectations – a common indicator of market stress or significant trading activity.
Source: Kaiko
In the derivatives markets, Ethereum has shown remarkable momentum.
Funding rates for Perpetum Futures Ethereum surged from the lowest in more than a year to a multi-month high in a matter of days.
At the same time, Open Interest in these futures reached a record $11 billion, indicating strong capital inflows and increased trading activity.
Source: Kaiko
Despite these promising signals, some metrics suggest caution.
Is your portfolio green? Check out the ETH Profit Calculator
AMBCrypto’s look at Glassnode data indicated a recent drop in the number of new Ethereum addresses, which could mean a slowdown in the influx of new entrants to the network.
Source: Glassnode
However, our look at Ethereum’s daily chart revealed that the asset has recently turned a significant level of resistance into support, potentially setting the stage for further gains and perhaps a break above the $4,000 mark.
Source: TradingView