Bitfinex Alpha | Why is ETH Underperforming?

Ethereum ETFs continue to struggle compared to Bitcoin ETFs, with significant outflows contributing to Ether’s underperformance relative to Bitcoin. Despite some positive inflows into newer Ethereum ETFs like BlackRock’s iShares Ethereum Trust, older products like Grayscale’s Ethereum Trust (ETHE) have faced substantial outflows, exacerbated by aggressive selling from major market makers like Jump Trading. This has led to a 40 percent decline in Ether’s price as of early August, with the ETH/BTC ratio hitting its lowest level in over 1,200 days.

In contrast, Bitcoin ETFs have shown resilience, with consistent inflows and a more stable price performance. The market’s confidence in Bitcoin, despite challenges like supply overhang, remains strong. Bitcoin is still on track to follow previous halving year trajectories and we expect an extremely bullish Q4. Based on historical data, either the Q3 low may be in or we have one last leg lower to find the bottom for Bitcoin. As Ethereum ETFs grapple with mixed performance and high outflows, the coming months will be crucial in determining their ability to recover and attract sustained investor interest. Key factors such as the broader macroeconomic environment and potential Federal Reserve rate cuts will significantly influence future ETF flows and market dynamics for both Ethereum and Bitcoin.

Macroeconomic data from the past week shows that in July, the US economic landscape showed signs of moderation in inflation, as consumer prices increased at a more subdued pace, indicating that inflationary pressures are gradually easing. For the first time in nearly three and a half years, the annual inflation rate dipped below three percent, raising expectations that the Federal Reserve may consider reducing interest rates in the near future. Complementing this trend, the Producer Price Index (PPI) for July rose by just 0.1 percent, down from 0.2 percent in June, suggesting that lower production costs are contributing to the overall cooling of inflation. Despite these positive developments, US retail sales surged in July, marking their most significant acceleration since early 2023. This reflects the resilience of consumer spending, which remains robust even in the face of persistent challenges such as high prices and borrowing costs.

However, not all sectors of the economy are faring well. The US housing market continues to struggle, with single-family home construction falling to a 16-month low in July. This decline can be attributed to factors such as the impact of Hurricane Beryl, an increase in the supply of new homes, and the burden of high mortgage rates and rising property prices. 

Despite these setbacks, consumer sentiment has shown signs of improvement, with the University of Michigan’s Survey of Consumers recording its first increase in five months. This boost in confidence is largely driven by more optimistic expectations for the future, even as concerns about the current state of the economy persist. 

In crypto news last week, we saw the US government transferring 10,000 seized BTC, worth around $600 million, from the Silk Road case to Coinbase Prime, possibly for custody purposes. This move aligns with the Department of Justice’s partnership with Coinbase Prime to manage large digital assets. US government wallets now hold approximately $12 billion in Bitcoin. On the corporate front, Tether has leveraged its growing profits to challenge tech giants by investing in AI and technology startups through its new venture arm, Tether Evo. With $118.5 billion Tether tokens in reserve, Tether’s profits have soared, allowing the company to diversify beyond its stablecoin, USDt, into cutting-edge areas like neural implant technology and AI infrastructure. Meanwhile, in the UAE, a landmark decision by the Dubai Court of First Instance has validated cryptocurrency payments for salaries under employment contracts. This ruling represents a significant shift in the UAE’s legal stance on digital currencies and further supports Dubai’s ambitions to solidify its position as a global crypto hub.

Have a great trading week.

The post Bitfinex Alpha | Why is ETH Underperforming? appeared first on Bitfinex blog.