Following the launch of the Spot Ethereum ETF, the price of ETH continued to fluctuate unexpectedly, proving that the launch of the Spot ETF was a “sell the news” event. So far, the second-largest cryptocurrency by market capitalization has lost about 10% of its value since the Spot Ethereum ETF began trading on Tuesday, July 23, and could see further declines, according to Matrixport analysis.
Spot ETH ETF triggers sell-off
There was a lot of excitement in the market after the launch of the Spot Ethereum ETF, especially around the fact that investors could now gain exposure to ETH without having to directly purchase the underlying token. However, this excitement was short-lived, as the ETH price is still struggling a few days after the launch.
In a report published Thursday, Markus Thielen, head of research at Matrixport, outlined a number of reasons why ETH was falling. As Thielen explains, while inflows exceeded $100 million on the first day, the Grayscale Ethereum fund suffered from outflows.
Similar to the launch of the Spot Bitcoin ETFs, the Grayscale ETH fund, which holds about $9 billion in ETH, has begun to see outflows. This is because Grayscale’s management fees remain high, with competitors offering fees as low as 0.19%. The fund saw $481 million in outflows on its first day, and $326 million the following day.
In addition, Mt. Gox distributions began around the time of the Spot Ethereum ETF launch, so this also put additional selling pressure on the cryptocurrency market. Much like Bitcoin’s price with the Spot Bitcoin ETF, ETH price reacted negatively to these outflows, leading to a price drop below $4,200.
Will ETH price bounce from this level?
Outflows from the Grayscale ETH fund since the launch of the Spot Ethereum ETF have been one of the main factors driving the ETH price decline. However, this is not the only bearish development that has emerged for the cryptocurrency.
Thielen notes that ETH price may have peaked based on the daily stochastic indicator. However, when the value of this indicator is low, it often indicates a buying opportunity and the price reaches its lowest level. Meanwhile, the high value suggests that the ETH price may have reached its peak.
According to the report, the price of ETH hit a 92% score in the days leading up to the launch of the Spot Ethereum ETF. Typically, a score above 90% is bearish for the price as it means the cryptocurrency is currently in overbought territory. The stochastic indicator is then expected to fall as investors dump their holdings.
So far, it has fallen 5% from 92% to 87%, suggesting that ETH has a long way to go before it stops bleeding. “Given the recent rally and potential Mt. Gox glut, the earnings season in the US and the weak seasons in August and September, it may make sense to push Ethereum short a bit longer,” said Markus Thielen in closing.
Featured image created with Dall.E, chart from Tradingview.com
