The U.S. Securities and Exchange Commission (SEC) gave its approval for the Ethereum spot exchange-traded fund (ETF) on May 23. However, despite this significant development, the price of Ether (ETH) failed to maintain its position above $3,800 on May 24. This came as a surprise, considering that just two days prior, ETH was trading at $3,943. The approval decision caught many off guard, especially given the market’s uncertainty regarding the odds of approval and the timing of the announcement.
It is worth noting that Ethereum is still 24% below its all-time high. Some market participants were quick to point out that the SEC has not yet approved the individual S-1 statements from each issuer, a process that could take weeks or even months. This delay, along with other factors, is hindering the performance of Ether. These factors include the stagnant growth of the Ethereum network, relatively high transaction fees, and regulatory uncertainty in the United States.
Some of the recent profit-taking can be attributed to the anticipation of the spot ETF’s approval, which triggered a 23% rally on May 20. This is a phenomenon often referred to as “sell the news,” where traders buy ETH in anticipation of an official announcement. This was particularly expected after reports that the SEC had urged exchanges like the NYSE and Nasdaq to expedite their 19b-4 filings on May 20.
Despite the hype surrounding the approval of the spot ETF, Ether remains 24% below its all-time high of $4,868, which was reached in November 2021. This indicates that the enthusiasm was not enough to push Ether’s market capitalization beyond its current value of $445 billion. Interestingly, Bitcoin (BTC) is currently only trading 7% below its all-time high from March 2024, suggesting that there are other factors at play that are constraining Ether’s performance.
When examining the usage metrics of the Ethereum network over the past 30 days, there is a lack of growth in volumes and deposits for decentralized applications (DApps). The total value locked (TVL) in the Ethereum network has declined by 6% since reaching a peak of 18.3 million ETH on May 16. It’s important to note that this metric does not consider DApps that do not require a large deposit base, such as non-fungible token (NFT) marketplaces, games, social networks, and collectibles. A closer look at the network’s leading applications reveals a significant concentration of volume in Uniswap, the top decentralized exchange (DEX).
Furthermore, seven out of the top ten Ethereum DApps, ranked by 30-day volumes, experienced a decrease in active addresses. Uniswap, the leader, saw a 25% drop in activity. Additionally, several DApps failed to attract more than 4,000 addresses, raising concerns about the potential market size for this network, especially when competitors offer much lower fees.
Another challenge for Ethereum is the issue of miner-extracted value (MEV). This practice, where validators manipulate transactions within a block to generate profits, leads to network congestion and higher gas fees. Ethereum co-founder Vitalik Buterin addressed this issue on May 17 by proposing protocol-level controls to reduce the information available to MEV developers. However, a practical solution is unlikely to emerge in the near future.
While the approval of the spot ETF is a positive regulatory development that classifies Ether as a digital commodity, ongoing regulatory actions against Consensys and the Ethereum Foundation continue to cast a shadow. Until the SEC signs off on the S-1 registration statements, the classification of Ether as a non-security instrument remains an open question.
In April, Consensys received a Wells notice from the SEC regarding MetaMask’s trading and staking services. Additionally, reports in March indicated that the regulator was investigating firms with alleged connections to the Ethereum Foundation regarding its staking services. These regulatory uncertainties have further impacted Ether’s performance.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading move carries its own risks, and readers should conduct their own research before making any decisions.