Analysis of Ethereum's Recent Market Trends

Ether has reached above $3,900 multiple times in the last seven days but has struggled to maintain this level. The market had high expectations from the potential approval of a spot Ethereum exchange-traded fund (ETF) by the United States Securities and Exchange Commission (SEC). Despite Ether's price surges on May 21, preceding the decision, it was unable to sustain the momentum.

Ethereum Spot ETF Approval: Unmet Expectations

There is anticipation among spot ETF traders for the approval of the respective Form S-1 for each fund. Senior Bloomberg ETF analyst Eric Balchunas predicts that Ethereum spot instruments could commence trading by July 4. His colleague, James Seyffart, highlighted that BlackRock's updated S-1 on May 29 indicates efforts towards launching spot Ethereum ETFs.

However, concerns arise about potential pressure on ETH if the Grayscale Ethereum Trust (ETHE) faces outflows post its conversion to an ETF. Similar issues have impacted Grayscale's Bitcoin fund (GBTC) due to high fees. Speculations suggest that daily outflows from Grayscale ETHE could surpass $100 million, potentially offsetting any influx from new investors.

The failure of Ether to breach the $3,900 resistance partly stems from the pre-ETF approval rally. Disappointment among investors regarding delayed effective trading has added uncertainty, contributing to a negative price impact. Additionally, Ether's futures open interest peaked on May 28, signifying market apprehensions.

Potential Risks from Ether Futures

With $16.8 billion in open interest for Ether futures, there are concerns about liquidation risks. Open interest reflects the total number of ETH futures contracts across various exchanges like Binance, CME, OKX, and Bybit. Higher notional values increase the likelihood of liquidations, especially with leveraged positions. A drop in Ether's price triggers forced liquidations for long contracts, further intensifying risks.

Conversely, rapid price surges could lead to shorts being liquidated if they employ excessive leverage. Exchanges address these risks by buying ETH futures to hedge against losses, keeping Ether's price below $3,900.

Ethereum's Activity and Competitors

Ethereum's success is evident from its high gas fees, indicating sustained demand for its block space. However, these fees have encouraged users to explore alternative blockchains focusing on scalability, like BNB Chain, Solana, and Aptos. Ethereum's migration to layer-2 solutions and the shift of some users and projects to other networks have impacted its growth.

Despite Ethereum's strong fundamentals, declining daily active addresses on DApps and modest network transaction volume hint at a shift towards competing blockchains. For instance, BNB Chain boasts significantly higher daily active addresses compared to Ethereum, with substantial transaction volumes on platforms like PancakeSwap. These on-chain metrics dampen Ether's potential to surpass $3,900 in the short term.

This article serves as general information and not as legal or investment advice. The author's opinions expressed here are independent and may not align with Cointelegraph's views.