The U.S. Securities and Exchange Commission (SEC) gave its approval to the Ethereum spot exchange-traded fund (ETF) on May 23. However, the price of Ether (ETH) failed to maintain its position above $3,800 on May 24, despite trading at $3,943 just two days prior. Many were caught off guard by the timing of the decision, as the market was uncertain about the likelihood of approval.
It should be noted that Ethereum is still 24% below its all-time high. Some market participants pointed out that the SEC has yet to approve the individual S-1 statements from each issuer, a process that could take weeks or even months. This delay, along with other factors such as the stagnant growth of the Ethereum network, high transaction fees, and regulatory uncertainty in the U.S., is affecting the performance of Ether.
Profit-taking ahead of the spot ETF approval likely contributed to the decline in Ether’s price. The anticipation of the approval led to a 23% rally on May 20, with traders buying ETH in expectation of the official announcement. However, this event is often referred to as “sell the news,” and it seems that the enthusiasm surrounding the approval was not enough to drive Ether’s market capitalization beyond its current level of $445 billion. In comparison, Bitcoin (BTC) is trading just 7% below its all-time high, indicating that there are other factors at play that are affecting Ether’s performance.
The metrics of the Ethereum network show no signs of improvement over the past 30 days. The total value locked (TVL) in the network has declined by 6% since reaching a peak on May 16. It’s worth noting that this metric doesn’t include DApps that don’t 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 concentration of volume in Uniswap, the top decentralized exchange (DEX).
Additionally, seven of the top ten Ethereum DApps ranked by 30-day volumes have seen a decrease in active addresses. Uniswap, the leader, experienced a 25% drop in activity. This raises concerns about the total addressable market for the Ethereum network, especially when competitors offer 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 has proposed protocol-level controls to address this issue, but a practical solution is unlikely to emerge in the near future.
While the spot ETF approval 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 uncertain.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment decisions.