Ether suffered notable declines today, dropping to its lowest value of the year, as the broader cryptocurrency markets, and risk assets in general, suffered widespread losses.
The price of ether, the second-largest digital currency by market value, fell below $2,200 earlier today, CoinMarketCap data shows.
Just two days prior, it was trading above $3,000, additional CoinMarketCap additional CoinMarketCap figures show.
Tim Enneking, managing partner of Psalion, emphasized the severity of this drop, describing it as “breathtaking, especially by the standards of the past several years,” in emailed comments.
Several other cryptocurrencies, including bitcoin and Solana’s SOL token, also experienced notable declines, additional CoinMarketCap figures reveal.
Major stock indices, including the benchmark S&P 500 index and the Dow Jones Industrial Average, encountered significant volatility.
Multiple Bearish Factors
When explaining the drop in ether prices, analysts cited multiple headwinds, including concerns of U.S. economic weakness that helped fuel widespread sell-offs in risk assets.
Greg Magadini, director of derivatives for digital asset data provider Amberdata, for example, stressed the U.S. July jobs report that came out last week, as well as communications provided by members of the Federal Open Market Committee, stating that these helped send “risk-assets crashing.”
While agreeing that these economic worries helped motivate investors to flee riskier assets, the market observers polled for this article emphasized other factors as well.
“It seems that Ether is experiencing volatility as a result of the current macro investment environment,” Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, said via email.
“Market participants were worried over the weekend when news of the, ‘Japanese Yen Carry Trade’ broke after the more hawkish fed meeting in the U.S. last week. I believe this combination of news, along with a sell-the-news event that happened when the Ether spot ETFs started trading on U.S. markets, was the primary driver for this correction,” he stated.
“Risk-on assets like crypto have been sold across the board as these investors worry about a potential recession ahead of the upcoming presidential election,” said Sifling.
Impact Of Ether ETFs
Numerous analysts highlighted the effect that the approval of spot-based ether exchange-traded funds has had on the markets.
While these funds certainly drew interest, they failed to generate as much trading volume as bitcoin-based spot ETFs.
Enneking emphasized the role that this development played in ether’s price performance in 2024, stating that it was a major contributor to the recent weakness in the digital asset.
“As for reasons for the drop other than the disappointing correlation with fiat equities markets, and the lumping of crypto into a general basket labeled ‘risk-on assets’, I think the main reason is disappointment over the market’s reaction to spot ETH ETFs. One could argue that the effect of the ETFs had been priced in, but that still doesn’t explain ETH’s very significant underperformance relative to BTC this year.”
“All that, plus the apparent demise of the ‘Trump trade’ with the Democrats switching presidential candidate just weakened the floor beneath the ETH price. When the low US employment numbers came out last week, and predictions went from ‘no landing’ or ‘very soft landing’ to a possible ‘hard landing’, along with a shift in sentiment from ‘maybe 25 bps in September’ to ‘25 or 50 bps in September’, the floor collapsed.”
History Is Repeating Itself, Says Analyst
Brett Munster, portfolio manager for Blockforce Capital, also spoke to the key role that Ether ETFs are playing in the market for the high-profile cryptocurrency.
“Ethereum is following the same path following its launch of the Ethereum ETF as bitcoin did following its ETF launch and for the same reason,” he stated via email.
“When the bitcoin ETFs launched, all the new issuers charged roughly 0.2% – 0.25%. The lone exception was Grayscale who decided to keep the fees roughly 10x as high as the rest of the market,” said Munster.
“The result was a mass exodus out of Grayscale and into other, lower costs ETFs,” he noted.
“Just like with the bitcoin ETF, Grayscale is keeping the fees on their ETH ETF 10x higher than the rest of the market,” said the analyst.
“Grayscale’s existing trust held roughly $10 billion worth of ETH prior to the ETF launch,” he continued.
“As we speculated earlier this year, we believed it was likely we would see a similar exodus as seen with the bitcoin ETF which would result in $2-3 billion worth of sell pressure on ETH in the first few weeks after launch. We predicted that this sell pressure would likely outpace net inflows, causing ETH’s price to dip over the first week or two.”
“That’s exactly what has happened as $2.1 billion worth of ETH has exited ETHE since launch.”
‘Incredibly Bullish’ Impact
Going forward, Munster offered an optimistic take on how these funds will affect the value of ether.
“In the long term, the approval and launch of Ethereum ETFs is incredibly bullish for ETH’s price,” Munster predicted.
“However, its no surprise that we are seeing an initial dip in ETH’s price over the first couple of weeks as the market works through the sell pressure from Grayscale’s conversion.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and SOL.
