As many expected, the debut on the USA stock exchanges of spot Ethereum ETFs caused a drop in the price of the crypto ETH.
The dynamic is very similar to what happened in January after the launch of the spot Bitcoin ETFs.
The problem of the drop in the price of the crypto ETH after the approval of the ETFs on Ethereum
The launch of the spot Ethereum ETFs on Tuesday was technically a success.
Not only did nothing go wrong, but the trading volumes turned out to be even higher than expected, although proportionally lower compared to those of Bitcoin.
The problem, well known already a priori, has been another.
One of the ETFs launched on Tuesday was actually a fund that had existed for many years that was simply being transformed into an ETF.
This is the Grayscale Ethereum Trust (ETHE), launched seven years ago. During all this time, the fund, not tradable on the stock exchange, had accumulated ETH for a total value exceeding 11 billion dollars.
However, not being an ETF, it could not easily liquidate its ETH in case of sales by shareholders, and thus over time it ended up accumulating more Ethereum than necessary.
However, once transformed into an ETF, it can liquidate the excess Ether daily, so if the shareholders sell too much it must necessarily sell the underlying (ETH).
The liquidations of Grayscale
Tuesday, during the first day of trading on the stock exchange of the Grayscale Ethereum Trust, there were capital outflows from this fund for more than 480 million dollars.
Yesterday, during the second day of trading, there were another 327 million dollars in outflows. In two days ETHE has lost more than 810 million dollars, or more than 7% of its AUM.
However, on Tuesday not only were the outflows from ETHE absorbed by other spot Ethereum ETFs, but the final balance overall was positive, with more than 100 million dollars of inflows.
Yesterday, however, the overall balance was negative by over 130 million, so the other ETFs were not able to reabsorb all the capital outflows from the Grayscale ETF.
The result was a net drop in the price of Ethereum, although at this rate the Grayscale Ethereum Trust will not take long to liquidate all the excess ETH. For the Grayscale Bitcoin Trust, it took weeks, but it started from about 30 billion dollars. ETHE, on the other hand, started from 11 billion, and at a rate of about 400 million per day, it could halve its AUM within two weeks.
Crypto news: the reaction on the price of Ethereum to the approval of spot ETFs
On Monday the price of ETH was around $3,500.
In reality, it had already started to decline on Tuesday, also because the data coming from Grayscale was not at all comforting.
The decline on Tuesday, however, had stopped above $3,400, but between yesterday and last night, when the data from the second day of trading of the new ETFs was released, there was a small crash that brought the price back below $3,200.
Practically in two days it lost 10%.
The current price level, however, is in line with that of ten days ago, so in fact yesterday’s mini-crash did nothing but erase the gains of recent days. It should be noted that when the news of the probable approval of spot Ethereum ETFs spread at the end of May, the price had risen from $3,000 to $3,600, therefore yesterday’s was only a correction.
The future predictions on the price of ETH
In the short term, it is possible to imagine that things will go more or less as they did at the beginning of the year for Bitcoin.
After the actual landing on the stock exchange of spot ETFs, the Grayscale fund started selling, and this caused a drop in the price.
The sales continued for about two weeks, during which the cumulative loss was about 14%.
Once the situation of the Grayscale fund stabilized, the price first recovered part of what it had lost, but then it started a true rally that led it to record new all-time highs with a +70% in just over a month.
Something similar could also happen for Ethereum, especially because the liquidations of the Grayscale fund seem accelerated, and this could also shorten the time of the decline.
The market situation
To all this must be added a slightly difficult situation that the traditional financial markets are going through.
After the boom in May and June, which lasted until mid-July, the US stock markets are correcting a bit.
It is for now only a small, and inevitable, correction following a true and proper boom that has led to recording new all-time highs.
In this situation it is normal that this can also have a negative impact on the crypto markets, but it could be only a temporary situation.
The success of ETFs
However, if only the performance data of the new Ethereum spot ETFs are considered, leaving aside the price and inflows/outflows, everything suggests that the launch was a success.
It was not a success of the proportions of that of the Bitcoin ETFs, but it was absolutely to be expected given that BTC capitalizes more than three times ETH.
Probably if there hadn’t been the Grayscale problem, the success could have been total, also because the only off-key note seems to be precisely the outflows from ETHE, which caused the price to drop.
In light of this, one can be optimistic about the future of Ethereum.
