The cryptocurrency market has experienced a decline following the recent approval of several spot Ether ETFs by the U.S. Securities and Exchange Commission (SEC).
Despite this seemingly positive development, traders exhibited a “sell-the-news” reaction. Furthermore, decreasing odds of Federal Reserve rate cuts have intensified the selling pressure.
The SEC’s recent decision to approve applications from Nasdaq, CBOE, and NYSE to issue ETFs based on the price of Ether was an important turning point. This approval might pave the path for these products to begin commerce later this year. However, instead of sparking a purchasing frenzy, the market experienced a steep decline.
Nine issuers, including VanEck, ARK Investments/21Shares, and BlackRock, hope to launch these ETFs. Despite this, the market’s net capitalization dropped by over 1.01% in the past 24 hours, reaching $2.51 trillion on May 24.
This counterintuitive reaction stems from the “sell-the-news” phenomenon, where investors who bought in anticipation of the approval are now selling to secure profits. Consequently, Ethereum (ETH) and other major cryptocurrencies faced substantial liquidations. ETH experienced the largest liquidation amount, totaling $118.41 million, followed by Bitcoin (BTC) at $55.23 million.
Impact of Market Sentiment and Liquidations
Market sentiment plays a crucial role in the current crypto landscape. Crypto analyst Zach Rynes noted that the market had already priced in the approval, with Ether surging 20% earlier this week. This surge lifted the overall crypto market by 5%.
The real answer why $ETH didn’t move upon ETF approval– Since the SEC’s pivot, everyone who wanted to buy the approval, already did– ETFs haven’t actually launched yet, so net new capital inflow still to comeNo need to overcomplicate things, just spot and chill https://t.co/BPAGSjq5og
— Zach Rynes | CLG (@ChainLinkGod) May 23, 2024
However, the anticipation of further regulatory steps, including the approval of S-1 filings, has tempered short-term buying enthusiasm. VanEck’s amended S-1 filing is currently under SEC review, and the process could extend for weeks or months.
Additionally, the substantial liquidations over the past 24 hours, amounting to $293.66 million, have exacerbated the market decline. Notably, long positions accounted for $215.80 million of these liquidations. These positions represent bets that asset prices will rise. When prices fall, traders or brokers must sell these positions to prevent further losses, increasing selling pressure and driving prices lower.
Source: Coinglass
Broader Market Implications
The broader implications of these events are significant. The crypto market’s losses highlight the inherent volatility and risk associated with crypto trading, particularly with leveraged positions. The data indicates that traders were more frequently betting on price increases that did not materialize. This triggered a cascade of liquidations, amplifying the overall market decline. For example, Solana (SOL) saw $12.11 million in liquidations, while smaller coins like PEPE experienced $10.02 million in liquidations.
Moreover, the influence of major exchanges like Binance is evident in these liquidation events. The largest single liquidation occurred on Binance for the ETH/USDC pair, valued at $12.41 million. These high trading volumes and volatility underscore the significant risk in crypto trading, especially for leveraged positions.
Despite the current downturn, the long-term outlook for the crypto market remains positive. Rynes anticipates a massive capital inflow, potentially reaching billions, once the Ether ETFs commence. However, this is contingent upon the successful completion of further regulatory steps. The approval and launch of these ETFs could mark a watershed moment for the industry.
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