Ether (ETH) experienced a significant downturn below $3,000 on July 5, marking its first drop to this level in 50 days. This decline was part of a broader correction in the cryptocurrency market, heavily influenced by Bitcoin (BTC). Investors are now apprehensive that the recent bullish phase in crypto may have concluded. Despite the upcoming launch of a spot Ethereum exchange-traded fund (ETF) in the United States, concerns linger regarding further potential declines in Ether’s price.
The drop in Ether below $3,000 mirrored the overall correction in the crypto market. On July 5, the total market capitalization of cryptocurrencies dipped below $2 trillion, a level last seen on February 26. Ether fell by 18% from $3,450 to $2,815, reflecting a 16% sector-wide decline over three days. This downturn was driven by a general pessimism towards cryptocurrencies, with increased selling pressure observed particularly on Bitcoin.
On July 7, the Mt. Gox bankruptcy estate transferred 47,229 Bitcoin, valued at $2.6 billion, to a new address as part of the process to repay creditors. Some of these Bitcoin were moved to a hot wallet of the Bitbank exchange, raising concerns about potential downward pressure on BTC prices. This move involved coins that had been locked up for over a decade, with a potential selling impact estimated at up to $4.5 billion.
Additionally, the German government has recently transferred 7,583 BTC to exchanges since June 19, totaling $415 million. German authorities hold a substantial 42,274 BTC, valued at over $2 billion, further contributing to market uncertainty. These large transactions have triggered $936 million in liquidations of leveraged long positions over three days, including $235 million in Ether futures.
Traders are now wary that the cryptocurrency bull market of 2024 might have peaked, coinciding with the S&P 500 index reaching new highs on July 5. The stock market responded positively to news of an uptick in the U.S. unemployment rate for June, which typically encourages central banks to consider interest rate cuts, thereby reducing the appeal of fixed-income investments.
Despite the conducive environment for risk-on assets, Ether and other cryptocurrencies failed to sustain their bullish momentum. The impending launch of a spot Ethereum ETF in the U.S. could potentially boost Ether’s price, but the impact remains uncertain due to the current tepid investor interest in the sector. Consequently, sentiment among Ether traders has soured, as reflected in derivatives metrics.
In stable markets, monthly Ether futures contracts typically trade at a 5%–10% premium over ETH spot prices to account for the extended settlement period.
Data indicates that the annualized ETH futures premium dropped to 8% on July 5, down from 11% a week earlier. While this decrease is notable given expectations surrounding the spot Ether ETF launch, it is not alarming.
To gauge whether there’s increased demand for hedging post-correction, analyzing the Ether options market is insightful. Typically, an ETH options skew metric above 7% suggests anticipation of a price drop, while a negative skew below -7% indicates optimism. The Ether options skew has remained stable around -5% over the past week, entering bullish territory last on June 26. This suggests prevailing neutral sentiment despite Ether’s price falling below $3,000.
Despite a 15% correction, Ether derivatives have shown resilience, indicating that professional traders are not aggressively hedging against further declines or anticipating an immediate recovery to the $3,300 support level.
This article provides information and analysis and does not offer investment advice. Readers should conduct their own research and assessment before making any investment decisions.