10x Research: How will ETH prices move in the post-ETF era?

Original title: Buy or Sell ETH? Ethereum ETFs are here...
Original source: 10x Research

Original translation: Azuma, Odaily Planet Daily

 

Editor's note: In the early morning of July 23rd, Beijing time, the U.S. Securities and Exchange Commission (SEC) officially approved the Ethereum spot ETF, allowing multiple ETFs to officially start trading on Tuesday. However, perhaps because the expectation of ETF approval has long been digested by the market, the price of ETH has not fluctuated significantly after the SEC's announcement. As of the time of posting, it is temporarily reported at 3442.62 USDT, a 24-hour drop of 1.3%.

 

At present, one of the most concerned issues in the market is undoubtedly the subsequent trend of ETH prices, especially after the ETF is officially opened for trading tomorrow. Can the capital inflow brought by the ETF boost the price of ETH? Will there be a potential trend of "good news is bad news"? In response to these issues, 10x Research, an investment institution obsessed with market predictions, once again released a market analysis of ETH's future market trends.

 

The following is the original content of 10x Research, compiled by Odaily Planet Daily.

 

Let's first review the approval process of the Ethereum spot ETF.

 

On May 20, the SEC unexpectedly asked the exchange to update its 19 b-4 filing materials, which means that the filing progress of the Ethereum spot ETF has made substantial progress, and the market has also increased the probability of approval of the ETF from 25% to 75% based on this change.

 

On May 23, the SEC officially approved the 19 b-4 filing of the Ethereum spot ETF, solving the biggest problem before the ETF was listed.

 

In the seven days since then, Ethereum's futures open interest has increased directly from $8.8 billion to $13 billion, and the price of ETH has jumped from $3,065 to a short-term high of $3,959.

 

This morning, the SEC has officially completed the final approval of the Ethereum spot ETF, allowing the trading product to start trading tomorrow. We have witnessed similar milestones many times in the past, such as the launch of Bitcoin futures in December 2017, the listing of Coinbase in April 2021, the listing of Bitcoin futures ETFs in October 2021, and the listing of Bitcoin spot ETFs in January 2024. All of these milestones have been followed by short-term corrections.

 

Currently, traders are asking us if a similar trend will occur with ETH…

 

While ETH prices rose to $3,959 in late May, they fell below $3,000 in early July. This in itself suggests that traders are not confident that ETH prices will continue to rise. Although ETH has risen back to $3,500 before the ETF was approved, we suspect that many people will choose to sell profits as soon as the ETF is launched - or even before it is launched.

 

In addition, the marketing efforts surrounding the Ethereum spot ETF are relatively low, which may directly lead to low retail or institutional interest in the ETF. BlackRock CEO Larry Fink recently gave a televised speech, but he only promoted Bitcoin, not Ethereum. This suggests that (at least in the early stages) BlackRock's customers have relatively limited interest in ETH.

 

When the Bitcoin spot ETF was released, the annualized funding rate in the futures market was close to 15%, and it once increased to 70% in February, which attracted the attention of many arbitrage funds - they would buy ETFs and hedge futures to earn arbitrage returns. This buying action strengthened the bullish sentiment around BTC.

 

Currently, the annualized funding rate in the Ethereum futures market is only 7-9%, which is not very attractive to arbitrage institutions, especially considering the capital rest cost of at least 5% (federal funds rate). Compared with the situation of the Bitcoin spot ETF in February, the Ethereum spot ETF is unlikely to attract too much arbitrage funds, thereby weakening the optimism about ETH.

 

 

Note: Ethereum Stochastics indicator (greater than 90% means overbought).

 

From a technical point of view, ETH's Stochastics indicator has basically reached its peak, which means that it is a good short opportunity now - we will use the recent high of 3560 as a stop loss.

 

Relatively speaking, we prefer to hedge short ETH while going long on BTC rather than going short directly. Traders can also sell Ethereum put options and buy Bitcoin call options at the operational level. However, options are relatively expensive, with an implied volatility of 65% expiring on September 27, but a 30-day realized volatility of only 50%, indicating that the implied volatility contains a significant premium.

 

From the perspective of market discussion, the discussion about Solana in this cycle is also significantly higher than that of Ethereum. Solana ecosystem gave birth to the craze of meme tokens, while Ethereum missed this round of opportunities due to high gas fees. We can cite various data to prove that Solana is more popular than Ethereum, such as Solana currently has 14.2 million active addresses, while Ethereum has only 7.5 million...

 

Ethereum's market dominance reached a high of 18.4% a month ago, and now it has dropped to 17.0%.The lack of market interest is also reflected in the gas price that has never been able to rebound.The Dencun upgrade in March 2024 significantly reduced network fees, but the number of network transactions stagnated, the number of active addresses was similar to three years ago, and the Ethereum network had almost no growth.

 

In a zero-interest trade finance environment, Ethereum's staking yield advantage was a key reason for the ecosystem to breed DeFi Summer in 2020 and 2021. Today, Ethereum's staking yield is only 3.12%, and Coinbase's Ethereum staking yield is only 2.91%. Although ETFs themselves do not involve staking, from a yield perspective, opportunity cost is a key reason for the low demand for ETH in this cycle.

 

 

Compared with BTC, the beta coefficient of ETH's rise is also weakening. Since the beginning of this bull market, ETH's performance has been less than ideal. If calculated from October 2022, ETH's performance will lag behind BTC by 40% .

 

Considering the above factors and the fact that the ETF issuer has not yet conducted large-scale marketing activities; plus the fact that some traders will choose to close some long positions when the news comes out; in addition, there is also the potential outflow of funds from Grayscale... This can indeed be a reason to be bearish on ETH, at least in the early stages.

 

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