Ethereum prices rose 12.5% between July 12 and July 15, but the upward momentum stalled at a strong resistance level of $3,500. Despite the approval of two additional spot Ethereum exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC), Ethereum prices pulled back to $3,400 on July 18. Despite this positive development, Ethereum’s derivatives market showed little signs of excitement.
Analysts predict Ethereum price will reach $5,000, but is it realistic?
The SEC has given preliminary approval to at least three issuers to begin trading spot Ethereum ETFs starting July 23. A total of eight spot Ethereum ETFs are awaiting final regulatory approval after the fund's S-1 filing is revised. Bitwise Chief Investment Officer Matt Hougan expects the price of Ethereum to reach $5,000 by the end of 2024, citing its low equivalent inflation rate, low cost for validators, and 28% of the supply locked in staking as reasons.
Despite the momentum of the spot ETH ETF, Ethereum investors are not optimistic, given that the market value of the entire crypto market has increased by 43% so far in 2024. In addition, the transaction volume of Ethereum decentralized applications (DApps) has risen by 7% to $221 billion in the past 30 days. In contrast, the activity of competitor BNB Chain has dropped by 25%, while Solana's transaction volume has dropped by 16%.
In terms of DApps deposits, the Ethereum network continues to lead with a total locked value (TVL) of 17.5 million ETH, equivalent to $59.8 billion. This metric is flat from the previous month, while competitors Solana and BNB Chain each hold about $4.8 billion. In addition, Ethereum's second-layer ecosystem activity has increased, with the local total TVL growing by 8.5% to $14 billion in the past 30 days. Therefore, the Ethereum on-chain data shows no weakness.
From a macroeconomic perspective, the latest US Producer Price Index was 2.6% higher than the previous year, slightly higher than the market consensus of 2.3%. This shows that the Federal Reserve (Fed) still needs to work hard to control inflation, which means that price pressures will continue to affect demand. In addition, China's 4.7% annual GDP growth may cause trouble for global stock markets.
In addition, the U.S. Labor Department reported that initial claims for unemployment benefits were 243,000 in the week ending July 13, the highest level since August 2023. Signs of a cooling labor market increase the likelihood that the Federal Reserve will cut interest rates in the coming months.
Still, there are no signs that investors are exiting risk-on markets, as evidenced by the fact that the S&P 500 is just 2% below its all-time high on July 16. Meanwhile, the price of Ethereum would need to rise 43% to surpass the record of $4,868 set in November 2021.
Ethereum futures don’t signal an imminent price surge
To assess whether cryptocurrency traders are gaining confidence, the Ethereum futures premium should be analyzed. In a normal market, these contracts should trade 5% to 10% higher than regular spot markets to compensate for their extended settlement period.
The annualized premium or basis rate for Ethereum fixed-month contracts is currently 11%, indicating moderate optimism. However, this indicator has not been able to maintain above 12% in the past month, which is somewhat worrying given the potential inflows from the upcoming spot ETFs launched in the United States. In contrast, the basis rate of Bitcoin is also 11%, indicating that there is no excessive optimism among Ethereum investors.
Ether bulls may argue that the current lack of confidence provides room for unexpectedly strong spot ETF net inflows. Nevertheless, given that Ethereum prices have failed to rise in the bullish scenario for risk assets, ETH derivatives indicators show a lack of investor interest, making a bull run above $4,000 unlikely.
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