ETH ETFs are welcome news but will many buy them?

Markets remained resilient last week with Bitcoin maintaining its position above the critical $62,000 level, propelled by the unexpected approval of the Ether Spot ETF. Early last week, both BTC  and ETH surged in anticipation of an imminent announcement, but immediately fell once the news was confirmed.

While it is certainly positive for the industry as a whole that further regulated vehicles are now being made available to access crypto assets, the SEC has made it clear that, in the case of ETH, no ETFs will be approved that seek to distribute to investors ETH staking rewards. With that being the case, it is possible that more investors might be drawn to investing directly in ETH itself, leaving them free to stake the asset and  earn additional returns. It suggests that the enthusiasm for ETH ETFs might not be as significant as that of  BTC ETFs to date.

Indeed, as of May 24th, BTC ETFs achieved a record streak of 10 consecutive days of inflows, with BlackRock’s IBIT leading the charge at $16.35 billion. Also, a telling indicator was that last week’s ETH price surge was driven by increased activity in the perpetual futures market. The $4,000 resistance level remains a key psychological barrier, and we see  potential for a robust uptrend if broken, although short-term volatility and consolidation are expected.

The state of the BTC and ETH markets is well-illustrated by the BTC and ETH implied volatility indices. We see a pattern now where intense speculation and significant market volatility builds up around perceived risk events such as the Bitcoin halving, the last FOMC meeting and the ETH ETF approvals, but then an almost equally fast return to stable prices, and reduced implied volatility and volatility risk premiums once the events play out.

In the broader economy, last week saw two key Fed officials lay out important insights into how they view current economic conditions, reiterating their firm commitment to reducing inflation to the two percent target. While a resilient labour market has bolstered overall economic activity, persistent inflation and financial stability remain key areas of focus for policymakers. 

The US housing market, in particular, faces continued challenges as existing home sales in April fell unexpectedly due to rising mortgage rates and high house prices. It marks the second consecutive month of falling sales and reflects deteriorating builder confidence. Higher mortgage rates have significantly impacted the housing market, with significant relief unlikely until the Fed begins cutting. 

US business activity is also robust, jumping to  its highest level in over two years in May, driven by robust growth in the services sector. However, manufacturers report escalating prices for various inputs, indicating potential future price inflation.

In a recap of the crypto news, the biggest development last week  was of course the SEC approval for ETH ETFs, representing a significant win for firms like VanEck, Fidelity, and BlackRock, and a major step forward for the broader cryptocurrency industry.

Meanwhile, the US House of Representatives approved the CBDC Anti-Surveillance State Act with a 216 to 192 vote. The bill aims to prevent the Fed from issuing a CBDC to individuals, though critics argue it could undermine the global dominance of the US dollar and US banks. 

And, as if on cue, US Presidential candidate Donald Trump has begun accepting cryptocurrency donations, positioning himself as the “crypto candidate” in stark contrast to the Biden administration’s more cautious stance on cryptocurrencies.

Have a good trading week!

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