The cryptocurrency markets experienced a 5.5% increase in total capitalization on May 15 following the release of inflation and retail sales data from the United States. However, Ether (ETH) failed to fully take advantage of this bullish momentum. Ether has not closed above $3,000 for over five days and has underperformed Bitcoin (BTC) by 22% since the beginning of 2024.
The rally in scarce assets is backed by U.S. macroeconomic data. Crypto markets responded positively to the U.S. consumer price index (CPI) data, which showed a 3.4% year-over-year rise in April, aligning with market expectations. However, the retail sales data for April, released on May 15, unsettled investors as it indicated stability from the previous month, contrary to economists’ forecasts of a 0.4% increase. This development increased the likelihood of the U.S. Federal Reserve (Fed) implementing measures to stimulate the economy.
Even if the U.S. Fed decides to maintain interest rates above 5.25% for an extended period to control inflation, the central bank may resort to actions such as purchasing government securities to boost the money supply and reducing the discount rate at which banks borrow from the central bank. Essentially, even a hint of continued liquidity provision can shape economic expectations and behaviors.
Contrary to expectations, weaker economic activity is often seen as an indicator that more money will be injected into the system, benefiting investments in scarce assets like stocks, gold, and cryptocurrencies. Over time, the government will need to issue more debt to fund these expansionary measures aimed at preventing an economic recession. Regardless of the interest rate, inflation is likely to rise due to the additional money circulating.
Some analysts believe that the upcoming decision by the U.S. Securities and Exchange Commission (SEC) on May 23 regarding VanEck’s spot Ethereum ETF application is a key reason for Ethereum’s inability to surpass the $3,000 resistance level. Traders are postponing their investment decisions until the outcome is more certain. A rejection from the SEC could lead to a short-term market correction.
Eric Balchunas, a senior ETF analyst at Bloomberg, doubts the approval of a spot Ethereum ETF in 2024, given the regulator’s cautious approach towards products that may be classified as securities, particularly those that include native staking services. This skepticism is also evident in the Ether derivatives markets.
To understand the position of professional traders, it is important to examine the ETH futures and options markets. Currently, the Ether futures premium (basis rate) is at 9%, indicating a general lack of enthusiasm concerning the decision on the spot ETF. In the options market, there is an even balance in the demand for call and put options, suggesting a neutral sentiment among traders.
If there had been an increased demand for bullish trades in anticipation of the spot Ethereum ETF decision, the prices for contracts that provide upside price protection would likely have been raised. However, this is not the case, indicating that ETH investors are not particularly optimistic about the approval chances of the spot Ethereum ETF.
Other factors, such as the ETH supply becoming inflationary for the first time in 18 months due to reduced transaction fees, may also be contributing to keeping ETH prices below $3,000.
Please note that this article does not contain investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.