The U.S. Securities and Exchange Commission (SEC) has given its approval for spot Ethereum exchange-traded funds (ETFs), but the actual trading of these instruments in U.S. markets is expected to take longer as the regulator has yet to approve each of the eight funds’ individual S-1 filings. This uncertainty surrounding the launch date and potential outflows has contributed to Ethereum’s struggle to surpass the $3,900 resistance level, and the answer may lie in the futures markets for Ether.
Investors in Ether are feeling uneasy, even those who believe that the launch of the spot ETF in the U.S. is imminent. This unease stems from the conversion of the Grayscale Ethereum Trust (ETHE) into a spot instrument. If the fund administrator decides to maintain its $11 billion fund fees at levels much higher than its competitors, it is likely to experience outflows similar to Grayscale’s GBTC, offsetting any inflows from other competitors such as BlackRock, Fidelity, VanEck, and ARK 21Shares.
Some analysts have suggested that the SEC’s decision to approve the spot Ethereum ETF was influenced by last-minute political pressure from Democrats to win over swing voters in the upcoming U.S. Presidential election in November. However, it is worth noting that the SEC was aware that the regulatory setup for the Ethereum instrument was similar to that of spot Bitcoin ETFs. According to analysts at Bernstein, the SEC took a pragmatic approach to avoid a legal battle.
Traders are currently debating whether bullish bets are being made through ETH derivatives markets or if the price of Ether is being artificially suppressed due to bets on the spot Ether ETF taking longer than expected. This uncertainty arises from mixed signals in the crypto market, particularly the recent actions of U.S. President Joe Biden, who vetoed a Congressional resolution aimed at repealing the SEC’s SAB 121 guidance. This has raised concerns about the regulatory environment for cryptocurrencies.
Predicting the timeline for the SEC’s approval of the S-1 filings for each Ethereum spot ETF is nearly impossible. Therefore, attention should be focused on trading metrics to determine whether traders are leaning bearish after multiple failed attempts to sustain prices above $3,900. Perpetual contracts, also known as inverse swaps, provide insight into this. These contracts incorporate an embedded rate recalculated every eight hours. A positive rate indicates a preference for higher leverage being utilized by longs (buyers).
Looking at the funding cost for ETH leverage in perpetual futures, it has remained insignificant, except for a brief spike on May 21. This indicates balanced demand between longs and shorts using perpetual contracts.
To get a better understanding of the market sentiment, one should also monitor the ETH monthly futures premium. These contracts do not necessarily track the spot Ether price as their longer settlement period causes sellers to demand a premium. During periods of excitement, this premium can reach higher levels as buyers are willing to pay more for leverage. The monthly futures premium rose to 15% on May 21 but has since dropped back to 13%, indicating a fading optimism but still above the neutral threshold.
It is important to note that low trust in strong U.S. spot ETF net inflows is reflected in ETH derivatives, regardless of whether the reason is the delay in S-1 approval or the fear of outflows from Grayscale’s ETHE instrument. As a result, the chances of a rally above $4,000 in the near term are slim based on ETH futures pricing.
Please note that this article is for informational purposes only and should not be considered as legal or investment advice. The views expressed in this article are solely those of the author and do not necessarily reflect the views of Cointelegraph.