Ether (ETH) underwent a significant decline, dipping below $3,000 on July 5 for the first time in 50 days. This drop was part of a broader correction across the cryptocurrency market, largely influenced by Bitcoin (BTC). Traders are now apprehensive about whether the recent bullish trend in crypto has come to an end. Despite the impending launch of a spot Ethereum exchange-traded fund (ETF) in the United States, concerns persist that Ether’s price could continue to slide.
On July 5, the total market capitalization of cryptocurrencies fell below $2 trillion, a level not seen since February 26. Ether’s price fell 18% from $3,450 to $2,815, reflecting the market’s 16% downturn over three days, driven by deteriorating sentiment towards cryptocurrencies. Analysts attribute this decline to increased selling pressure on Bitcoin.
In another development, on July 7, the Mt. Gox bankruptcy estate transferred 47,229 Bitcoin—worth $2.6 billion—to a new address as part of its creditor repayment process. This move, including a transfer to a hot wallet at the Bitbank exchange, raised concerns about potential selling pressure amounting to up to $4.5 billion from these long-held coins.
Further compounding the market’s anxiety, the German government has transferred 7,583 BTC—equivalent to $415 million—to exchanges since June 19, out of a total holding of 42,274 BTC valued at over $2 billion. These large transactions have contributed to fear, uncertainty, and doubt (FUD), resulting in liquidations totaling $936 million across leveraged long positions in recent days, including $235 million in Ether futures.
Traders are now questioning whether the cryptocurrency bull run of 2024 has already peaked, especially as this downturn coincided with the S&P 500 hitting a new high on July 5. The stock market’s positive response to the U.S. announcement of a rise in the June unemployment rate to 4.1% suggests expectations of potential interest rate cuts by the central bank, which could diminish the appeal of fixed-income investments.
Despite conditions favoring risk-on assets, Ether and other cryptocurrencies failed to sustain their upward momentum. While the launch of a spot Ethereum ETF in the U.S. could theoretically boost Ether’s price, predicting its actual impact remains uncertain due to current tepid investor interest in the sector. Consequently, Ether traders have grown less optimistic, a sentiment echoed in derivative metrics.
In typical market conditions, monthly Ether futures contracts trade at a 5%–10% premium compared to spot prices to account for longer settlement periods. Data from Laevitas.ch shows that the annualized premium on ETH futures dropped to 8% on July 5, down from 11% a week prior. While this decrease isn’t alarming, it reflects diminished expectations surrounding the upcoming ETF launch.
To gauge sentiment regarding hedging demand following the recent price correction, analysts look to the Ether options market. Normally, an ETH options skew above 7% suggests anticipation of a price decline, while a skew below -7% indicates optimism. Currently, the Ether options skew has held steady around -5% over the past week, indicating a prevailing neutral sentiment since June 26, with no significant rush for downside protection despite Ether’s dip below $3,000.
Despite a 15% correction, Ether derivatives have shown resilience, suggesting that professional traders are not rushing to hedge against further price declines or expecting a quick recovery to the $3,300 support level.
This article does not offer investment advice. All investment decisions involve risk, and readers should conduct their own research before making any decisions.