Will ETH Enter a Bull Market? Analysis: ETF Daily Average Net Outflow Could Reach $110 Million USD
Last week, there was a dramatic shift in market sentiment towards ETH as the U.S. Securities and Exchange Commission (SEC) unexpectedly approved the proposal for a spot ETH ETF. The SEC approved the 19b-4 applications from the New York Stock Exchange (NYSE), Chicago Board Options Exchange (Cboe), and Nasdaq. S-1 forms from key issuers such as BlackRock, Fidelity, and VanEck are currently under review, and the trading of ETH ETFs will be officially launched after these forms receive final approval.
Table of Contents:
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Kaiko Analysis: Implications of Increased Implied Volatility
Reaction in the Derivatives Market
General Increase in the Spot Market
Concerns over Grayscale ETHE
Comparison with BTC ETF: Impact of ETH Selling Pressure on Coinbase Daily Trading Volume
Market Depth as Another Consideration
Institutional Kaiko Analysis
Recently, the implied volatility of ETH, which was less than 60% on May 20th, sharply rose to nearly 90% on May 22nd before falling back by the end of the week. Additionally, short-term implied volatility has exceeded long-term indicators, a situation referred to as an inverted volatility structure, which usually indicates market pressure.
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The drastic change in ETH sentiment is also evident in the derivatives market. Within just three days, the funding rate of ETH perpetual futures skyrocketed from the lowest level in over a year to a multi-month high. The open interest of ETH futures reached a historical high of $11 billion, indicating a large influx of capital into the field. The ratio of ETH to BTC has also increased, although it remains below the high point in February.
Since May 21st, both the U.S. and offshore spot markets have experienced strong net buying, whereas offshore exchanges had been recording net selling previously.
The launch of the ETH ETF may lead to selling pressure on ETH as Grayscale’s ETHE could experience outflows or redemptions. The discount rate of this fund has ranged from 6% to 26% in the past three months. ETHE currently holds over $11 billion in assets, making it the largest ETH investment tool.
Referring to the precedent of the Bitcoin ETF, GBTC experienced $6.5 billion in outflows in its first month of trading, accounting for 23% of its initial assets under management (AUM). If ETHE experiences similar outflows, it could mean an average daily outflow of $110 million, equivalent to 30% of the daily trading volume of ETH on Coinbase. However, the outflows from GBTC were eventually offset by inflows from other BTC ETFs, making the overall market impact of ETHE redemptions uncertain.
The market depth of ETH on centralized exchanges is currently approximately $226 million, which is 42% lower than the average level before FTX. Compared to around 50% at the beginning of 2023, only 40% of the market depth is concentrated on U.S. exchanges.
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Further reading:
Grayscale CEO Michael Sonnenshein Resigns, Former Goldman Sachs Executive to Take Over
DCG Successfully Weathers Crypto Winter, Q1 Revenue Exceeds $200 Million
