Ethereum (ETH) Price May Be on the Cusp of the Most Important Event in ETH ETF Consolidation

The price of Ethereum (ETH) may be on the verge of the most important event regarding the integration of the altcoin ETH ETF with traditional financial markets, but its price is not reacting as expected. In fact, on June 24, Ethereum hit its lowest level in over a month, falling to the $3,250 level. Although ETH eventually reclaimed $3,400 support on June 25, on-chain and derivatives metrics indicate limited upside potential.

Analysts say immediate launch of ETH ETF could be disappointing

Some analysts believe the timing of the launch of an Ethereum spot exchange-traded fund (ETF) is unlikely to result in significant net inflows under current market conditions. Although the regulator dropped its investigation into Consensys, a major company in the Ethereum ecosystem, and halted the potential classification of Ethereum bets as securities, the overall economic environment remains challenging.

Bloomberg ETF analysts Eric Balchunas and James Seyfart expect Ethereum ETFs to be able to attract between $1 billion and $2 billion in the first few weeks. Similarly, Steven Richardson, managing director of financial markets at Fireblocks, told Cointelegraph that he expects a significant drop in flows when the ETF launches.

Markus Thelen, head of research at 10x Research, noted that the revenue generated by Ethereum is “tiny” compared to its market value, suggesting that the asset does not currently represent “a viable investment that produces sufficient cash flow “. Thielen also noted that returns on ether holdings remain lower than yields on U.S. Treasuries.

Despite the more favorable regulatory environment for cryptocurrencies in the United States, it is crucial not to overlook macroeconomic trends. The US Conference Board reported on June 25 that its consumer confidence index fell to 100.4 from 101.3 in May, indicating that households are concerned about inflation, according to Yahoo Finance.

Also on June 25, U.S. Federal Reserve Governor Michelle Bowman reiterated that interest rates would remain high “for some time,” as reported by Yahoo Finance. Bowman stressed that inflation remained “high” and noted that any easing of financial conditions or additional fiscal stimulus could lead to an increase in inflation. The Fed’s median forecast is for just one rate cut before the end of the year, which would maintain the appeal of fixed-income investments.

Ethereum network fees are high and demand for ETH leverage is low

The Ethereum network has its own challenges, including relatively high gas fees, which hover around $3 per transaction on the base layer. This problem partly explains why competing blockchains such as BNB Chain (BNB) and Solana (SOL) are able to capture large amounts.

Despite these challenges, Ethereum remains the clear leader in terms of volume of total value locked (TVL) and decentralized applications. However, according to DappRadar, demand has not increased over the past seven days, while competitors like Solana and Aptos have seen an increase in activity and deposits. Although the Ethereum Layer 2 ecosystem is robust, the challenges posed by these incumbents should not be ignored.

To understand professional trader sentiment on ETH, one must look at ETH futures metrics. The Ether futures premium refers to the difference between monthly contracts on derivatives markets and the spot level on regular exchanges. Typically, an annual premium (capital) of 5% to 10% should be paid to compensate for the extended settlement period.

The Ethereum futures premium fell below the 10% threshold on June 21 and has since remained in a neutral range. This change represents a change in trend after five weeks of bullish sentiment, and is particularly concerning given that U.S. Securities and Exchange Commission Chairman Gary Gensler confirmed the launch of the Ethereum Spot ETF by september.

As Markus Thelen pointed out, justifying Ethereum’s token valuation is a challenge, given that the network’s revenue is only $23.9 million per week, based on DefiLlama data. In comparison, TRON and Solana, which hold much smaller deposits, generate $8.8 million and $9.8 million per day, respectively. Therefore, if analysts’ predictions of a decline in ETF inflows hold true, the likelihood of Ethereum surpassing $3,700 in the near term appears minimal.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research before making a decision.