The U.S. Securities and Exchange Commission (SEC) has given approval for spot Ethereum exchange-traded funds (ETFs) on May 23. However, the actual trading of these ETFs in U.S. markets will take longer as the regulator still needs to approve each of the eight funds’ individual S-1 filings. The uncertainty surrounding the launch date of Ethereum spot ETFs has hindered ETH’s price from surpassing the $3,900 resistance level. To understand this struggle, it is important to consider Ether’s futures markets.
Investors in Ether are uneasy, even if they assume that the launch of spot ETFs in the U.S. is imminent. This unease arises from the conversion of the Grayscale Ethereum Trust (ETHE) into a spot instrument. If the fund administrator decides to maintain the fund fees of $11 billion at a higher level than its competitors, it could result in outflows from Grayscale’s GBTC, offsetting inflows from other competitors such as BlackRock, Fidelity, VanEck, and ARK 21Shares.
Some analysts speculate that the SEC’s decision to approve the spot Ethereum ETFs was influenced by last-minute political pressure from Democrats to win over swing voters in the upcoming U.S. Presidential election. However, these analysts also note that the SEC was aware of the regulatory similarities between the Ethereum instrument and the Bitcoin ETFs. As a result, Bernstein’s analysts believe that the SEC took a pragmatic approach to avoid a legal battle.
Traders are currently debating whether bullish bets are being made through ETH derivatives markets or if the price of Ether is being artificially suppressed due to delayed expectations of the spot Ether ETF. This uncertainty arises from the mixed signals in the crypto market, particularly the recent actions of U.S. President Joe Biden, who vetoed a Congressional resolution aimed at repealing the SEC’s SAB 121 guidance. This move has raised concerns about the regulatory environment for cryptocurrencies.
Predicting the timeline for the SEC’s approval of the necessary S-1 filings for each Ethereum spot ETF is nearly impossible. Therefore, attention should be shifted to trading metrics to gauge whether traders are leaning bearish after multiple unsuccessful attempts to sustain prices above $3,900. Perpetual contracts, also known as inverse swaps, include an embedded rate that is recalculated every eight hours. A positive rate indicates a preference for higher leverage being utilized by longs (buyers).
Looking at the funding cost for ETH leverage in perpetual futures, there has been balanced demand between longs and shorts. With the exception of a brief spike on May 21, the funding cost has been insignificant. This suggests that there is no significant bias towards either long or short positions using perpetual contracts.
To further analyze the market sentiment, it is important to monitor the ETH monthly futures annualized premium. These futures contracts often deviate from the spot Ether price due to their longer settlement period, with sellers demanding a 5% to 10% premium. During periods of excitement, this difference can increase to 20% as buyers are willing to pay a higher premium for leverage. However, the premium for Ether’s monthly futures has decreased from 15% on May 21 to 13% on June 3, indicating a fading optimism but still slightly above the neutral threshold.
It is worth noting that this data does not necessarily imply a lack of confidence in the launch of spot Ethereum ETFs, given the stricter regulations around the world. Various jurisdictions, such as Hong Kong and Paraguay, have taken measures against unlicensed exchanges and unregistered crypto mining equipment. Additionally, there have been claims that Iran is utilizing digital assets to bypass sanctions. These factors contribute to the low trust in strong U.S. spot ETF net inflows reflected in ETH derivatives.
Considering all these factors, the odds of a rally above $4,000 in the near term seem slim based on ETH futures pricing. It is important to note that this article provides general information and should not be taken as legal or investment advice. The views expressed here are the author’s own and do not necessarily reflect the views of Cointelegraph.