With some exceptions, Ethereum has been a pain trade throughout most of this cycle. Major rallies for Bitcoin, Solana, and various meme coins saw the majority of gains this cycle. Ethereum is still up considerably from its 2022/23 lows but relatively less. But this was about to change, or so the expectation of many went. Ethereum Spot ETFs finally began trading on July 23rd. This marks a major milestone for the cryptocurrency market after the Bitcoin ETF spot. Earlier this summer, the US Securities and Exchange Commission (SEC) approved Spot Bitcoin ETFs, which led to a significant Bitcoin rally, as institutional and mainstream investors gained access through their ‘traditional finance’ brokers.
For most of the year, the expectation was that Ethereum ETFs would be rejected. The SEC continued to argue that Ethereum is an unregistered security. For various reasons that we covered previously, the regulator changed their mind in late May. Ethereum did rally following this change of mind. But so far, the actual ETF launch has been a sell-the-news moment. Ethereum’s price is down over 4% over the course of the week. All the while, Bitcoin has rallied on the back of so-far unjustified speculations that US presidential candidates might announce support for adding Bitcoin to the US National Reserves, similar to Gold. The Ethereum pain trade continues.
Or does it? After 3 days of trading, the Ethereum ETFs launched by Blackrock, Fidelity, and others saw over $850 million in inflows. However, Grayscale’s previously locked ETHE fund saw outflows of over $1.1 billion. The net inflow into the ETFs is therefore negative. But ETHE’s pricing is 2.5%, 10x higher than the next most expensive fund in the market. A lot of the ETHE outflows will eventually find their way back into the market.
Also, Ethereum’s price drop comes on the back of a worldwide drop in stock markets following disappointing earnings from tech companies like Tesla as well as from dropping global demand. The main ‘pitch’ of the Ethereum ETF to traditional investors is that this is essentially a tech investment, unlike Bitcoin which competes in a different segment as a potential gold competitor and generally a macro asset. It makes sense that Ethereum would sell off as tech stocks around the world drop.
Even more importantly, the Bitcoin rally post-ETF came in two parts. The first part was the run-up to the ETF launch. The second, parabolic part followed weeks later. The main question remains: are we seeing a traditional summer lull in which markets rest in between a bull market? Or will markets not see new all-time price highs in the near future? We might have relived a version of the 2020 DeFi summer but in the form of ETF hype and memecoins. DeFi summer was famously followed by a generational bull market in 2021. Looking back, COVID, historically low interest rates, and financial stimulus all acted together to drive the madness. This time around, who knows, the political and regulatory winds for Crypto might be turning. If this does not give cause for optimism, nothing will. And maybe even the Ethereum Pain trade will, after all, turn out well.
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