The cryptocurrency markets experienced a 5.5% increase in total capitalization on May 15, following the release of inflation and retail sales data from the United States. However, Ether (ETH) failed to fully take advantage of this bullish momentum. It has been over five days since Ether last closed above $3,000 and it has underperformed Bitcoin (BTC) by 22% since the beginning of 2024.
The rally in some scarce assets is supported by U.S. macroeconomic data. The crypto markets responded positively to the U.S. consumer price index (CPI) data, which showed a 3.4% year-over-year rise in April, in line with market expectations. However, the retail sales data for April, released on May 15, unsettled investors as it indicated stability compared to the previous month, contrary to economists’ forecasts of a 0.4% increase. This development increased the possibility of the U.S. Federal Reserve (Fed) implementing measures to stimulate the economy.
Even if the U.S. Fed decides to maintain interest rates above 5.25% for a prolonged period to control inflation, the central bank may resort to actions such as purchasing government securities to increase the money supply and reducing the discount rate at which banks borrow from the central bank. Essentially, even a hint of continued liquidity provision can shape economic expectations and behaviors.
Contrary to expectations, weaker economic activity is often seen as an indication that more money will be injected into the system, which benefits investments in scarce assets like stocks, gold, and cryptocurrencies. Eventually, the government will need to issue more debt to fund these expansionary measures aimed at preventing an economic recession. Over time, inflation is likely to rise due to the additional money circulating, regardless of the interest rate.
Some analysts believe that the upcoming decision by the U.S. Securities and Exchange Commission (SEC) on May 23 regarding VanEck’s spot Ethereum ETF application is a major reason why Ethereum has not been able to surpass the $3,000 resistance level. The uncertainty surrounding this event has led traders to postpone their investment decisions until the outcome is more certain, which is a logical response. Even if one is optimistic about Ethereum’s long-term prospects, a rejection from the SEC could lead to a short-term market correction.
Eric Balchunas, a senior ETF analyst at Bloomberg, has expressed doubt about the approval of a spot Ethereum ETF in 2024, given the regulator’s cautious approach towards products that may be considered securities, especially those that include native staking services. This skepticism is also evident in the Ether derivatives markets.
To understand the positioning of professional traders, it is important to examine the ETH futures and options markets. In neutral market conditions, Ether futures contracts are typically priced between 5% to 10% above the regular spot prices of ETH to account for the extended settlement period.
Currently, the Ether futures premium (basis rate) stands at 9%, a figure that has remained stable for the past two weeks. This level indicates a general lack of enthusiasm regarding the spot ETF decision, suggesting a neutral sentiment among traders.
In the options market, there is an even balance in the demand for call (buy) and put (sell) options, as both types of instruments are trading at similar price levels. Typically, if traders expect a drop in Ether prices, the 25% delta skew metric will exceed 7%. Conversely, periods of high market excitement often result in a negative skew of 7%.
If there had been an increased demand for bullish trades in anticipation of the spot Ethereum ETF decision, whales and market makers would likely have raised the prices for contracts that provide upside price protection. This would indicate their expectation of higher future prices and their intention to capitalize on traders’ willingness to pay more for potential gains.
Although it is difficult to pinpoint the exact reasons behind Ethereum’s failure to take advantage of the recent gains in the cryptocurrency sector, ETH investors do not appear to be particularly optimistic about the chances of the spot Ethereum ETF being approved. Additionally, other factors such as the ETH supply becoming inflationary for the first time in 18 months, due to reduced transaction fees, may also be contributing to keeping ETH prices below $3,000.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making a decision.