Despite a sharp 20% drop in price, U.S.-listed spot ether exchange-traded funds (ETFs) saw net inflows of nearly $49 million on Monday, indicating strong demand.
Meanwhile, some pointed to the resilience of the Ethereum network in the face of the price drop, indicative of strong fundamentals.
As a seasoned analyst with over two decades of experience in the financial markets, I find it intriguing to witness such paradoxical market dynamics. On one hand, we have a 20% drop in the price of U.S.-listed spot ether (ETH) causing a significant sell-off, yet on the other, ETH ETFs are seeing strong demand and net inflows.On Monday, U.S.-based ETH spot ETFs experienced approximately $49 million in total investments, even as the price of ETH declined by 20%. This trend highlights a persistent interest in ETH, the world’s second-largest cryptocurrency by market cap.
On Monday, the price of Ether plummeted by up to 20%, marking its steepest single-day decline since 2021. This drastic drop was primarily due to Jump Crypto, a well-known cryptocurrency trading firm, transferring significant quantities of Ether to centralized exchanges, potentially hinting at planned sell-offs. The overall crypto market also experienced a downward trend, amplifying the selling pressure. Moreover, around $340 million worth of ETH futures contracts were liquidated, further intensifying the negative impact on traders.
Despite a dip, institutional investors stepped up their Ethereum purchases significantly. According to SoSoValue’s data, Ethereum ETF trading volumes reached approximately $715 million, the highest since July 30. BlackRock’s ETHA accounted for the largest inflow at around $47 million, followed by Fidelity’s FETH and VanEck’s ETHV, each reporting inflows of roughly $16 million.
In contrast, Grayscale’s ETHE experienced withdrawals totaling $46 million, whereas its smaller Ethereum Mini Trust, also provided by Grayscale, saw deposits of $7 million.
Despite being launched for trading on July 23, the ETH ETFs have experienced a total withdrawal of approximately $460 million so far, suggesting that robust long-term demand for these products has yet to materialize. Conversely, Bitcoin ETFs saw over $1 billion in net deposits within their initial 12 trading days, demonstrating stronger early interest.
The flow of funds into Exchange-Traded Funds (ETFs) can serve as a reliable indicator of prevailing market trends, providing insights into where investors are choosing to allocate their resources.
During the significant drops, certain market analysts noted that apps running on the Ethereum network remained robust – an indication of solid foundations.
“The significant decrease in Ether’s value was primarily caused by the mass selling of Jump Crypto and the emptying of large cryptocurrency wallets owned by ‘whales,’ as explained by Alice Liu, the lead researcher at CoinMarketCap to CoinDesk via email. On a brighter side, LSDFi passed the test during stressful conditions: there hasn’t been a significant surge in Lido’s withdrawal line, and no liquid staking relies on different projects.”
Staking and Derivative Finance, commonly known as LSDFi, is a casual term used to describe a system where you can earn returns even while preserving liquidity by using derivative tokens in a blockchain setting.
“Liu observed that one positive outcome from ETH‘s recent liquidation is the rejuvenation of the DeFi market, as activity on DeFi platforms has increased substantially on the network. Additionally, he mentioned that gas fees have returned to a more manageable range of 10-15 Gwei, following a high of 370 Gwei today, which are the costs users pay to utilize the Ethereum network.”