TL;DR
- The SEC approved the first ETH ETFs, classifying the asset as a commodity.
- A possible bull market for ETH is expected in the long term, despite short-term challenges.
- Volatility and liquidity in the Ethereum markets have shown significant changes.
The recent approval of Ethereum (ETH) ETFs by the US Securities and Exchange Commission (SEC) has marked a significant change in market sentiment towards this cryptocurrency.
This development has not only fueled expectations of a bull market for ETH in the long term, but has also generated notable volatility in the short term, according to recent analysis by Kaiko.
The approval of ETH ETFs by the SEC was unexpected and swift.
Regulators have approved 19b-4 filings from major exchanges such as NYSE, Cboe, and Nasdaq, implying that ETH (without staking) is considered a commodity rather than a security.
This classification has important implications for the regulation of other similar tokens in the US, facilitating their trading, custody and transfer.
The approval of these ETFs is expected to reduce some of the regulatory uncertainty that has affected ETH’s performance over the past year.
Following the announcement, ETH implied volatility for the nearest maturities skyrocketed from less than 60% to nearly 90% in just two days, reflecting market enthusiasm.
This short-term volatility outweighed longer-term measures, a phenomenon known as an inverted volatility structure, which typically signals stress in the market.
In derivatives markets, ETH perpetual futures funding rates rose sharply, with open interest hitting a record $11 billion, indicating strong capital inflows.
Furthermore, the ETH/BTC ratio, which measures the relative performance of both assets, increased from 0.044 to 0.055, although it is still below February highs.
ETH Cumulative Volume Delta (CVD) showed strong net buying in both the US and overseas spot markets since May 21, a notable change from the net selling previously recorded on offshore exchanges.
However, the approval of Ethereum ETFs may also bring short-term challenges.
Possible selling pressure is anticipated due to redemptions or exits from Grayscale’s ETHE, which has been trading at a significant discount.
ETHE, the largest ETH investment vehicle with over $11 billion in assets under management, could see sizable outflows that would impact Ethereum’s average daily volume, especially on platforms like Coinbase.
Long-term outlook for Ethereum
Despite these potential short-term challenges, the long-term outlook for ETH is positive.
The regulatory clarity provided by the SEC and the approval of Ethereum ETFs are important milestones that can drive the growth and adoption of ETH.
The ability to offer ETFs in ETH will also attract a broader range of institutional investors, thus increasing the legitimacy and stability of the cryptocurrency market.
As the market absorbs potential ETHE outflows and stabilizes, inflows into new ETFs are expected to offset and exceed these outflows, just as happened with bitcoin (BTC) ETFs previously.
Additionally, Ethereum’s market depth on centralized exchanges is currently approximately $226 million, which is still below FTX’s pre-crisis average levels but represents a solid foundation for future growth.
