The launch of an Ethereum (ETH) ETF arrived with additional price pressure. Some suggest the pressure may be coming from Grayscale’s wallets, which were filled during much lower ETH prices.
Ethereum (ETH) sank toward the $3,100 level after the initial ETF trading. The new investment vehicle started with low inflows and ended with net outflows. But the selling pressure may not continue, as some of it comes from the wallets of Grayscale.
One of the possible scenarios would be that Grayscale may use its sizable wallet to further pressure ETH. Analysts put the time frame for that effect at two months, followed by a bigger ETH breakout.
Grayscale’s trading behavior is also not one-directional. The current ETH reserves are back at $9.17B, after a series of purchases from Coinbase Prime. The effect was that both ETH traders on purely crypto markets and ETF traders benefitted from the subsequent ETH recovery over $3,200.
At the same time, the Grayscale Ethereum Trust (ETHE) trades at the equivalent of $2,600 ETH. The trust serves as a marker for mainstream interest and in the past, Grayscale products have traded either at a premium or a big discount to the market. Grayscale uses its ETH to secure the 10% weight of actual tokens in the price of the ETHE trust, benefitting from its earlier purchases as low as the $200 price range.
It's not really that complicated
BTC ETF launched, Grayscale dumped for 13 days and supressed the price.
After that it was up only for 2 months and the price doubled.
So yeah, exact same thing will happen to ETH meaning $6k ETH in 13 days + 2 months
You're welcome pic.twitter.com/8PnMABzYiC
— Kale Abe (@kale_abe) July 24, 2024
Grayscale gains outsized influence on ETF market
The Ethereum ETF market is starting out with a new balance of players. Grayscale, however, has a first-mover advantage, currently owning as much as 95% of the ETH available for the ETF products.
Even BlackRock, one of the leading ETF providers, only holds 2.8% of the new market. Over time, the balance may shift, but Grayscale’s holdings will be closely watched.
Grayscale may not divest fully in a way similar to the German government with their Bitcoin (BTC), but may continue to sell on days of active buying. The first day of ETF trading also saw inflows of $590M, showing emerging interest.
However, subsequent days show outflows are still dominating. The ETH ETF launch compares to the initial days of the BTC ETF, when the initial outflows caused a market correction. The current pullback for ETH is seen as the precursor to a bigger rally, with targets between $6,000 and $10,000 ETH.
The recent price pressure also coincided with activity on the Ethereum Foundation wallet, which has sold coins in the past for other investments. The latest ETH transfers have not led to selling yet.
Massive Ether long positions appear on Huobi
One of the reasons for the current price pressure may also be an attack on a newly made long position on Huobi. The recent longs happened at the higher ETH range, and may be attacked with further selling to try and liquidate them.
Rumors around the entity that built those positions suggest it may be Justin Sun, founder of TRON and often an active trader. Sun has denied the allegations, but ETH still has to defend a recently replenished $500M long position.
Liquidation heatmaps also slow a bubble of positions around $2,800 that may cause a liquidation dip into the range. At this point, ETH is almost equally closer to attacking those positions, as well as shorts above $3,600.
The presence of attackable open interest also puts ETH in two possible scenarios – a ‘Bart Simpson’ chart, or a slowdown before a bigger rally. Expectations from the past few days see the current dip as one of the last periods in the $3,100-$3,200 range before an ETH bull market restarts.
Smart money buyers are also appearing at that range, suggesting a short-term market bottom. The ETH/BTC trading pair is also closely watched for a breakout, though in the past weeks, the dominance of BTC expanded rapidly above 55%, while ETH dominance slid under its usual range of 17%.
The ETH correction also affected meme tokens, which are seeing a turnover of buyers. ETH rallies are seen as favorable for top meme assets like Pepe (PEPE). Ethereum active daily users also reacted to the ETF news, rising close to 500K per day.
Cryptopolitan reporting by Hristina Vasileva
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