In the midst of a 5.5% rise in total cryptocurrency market capitalization, Ethereum, one of the leading cryptocurrencies, failed to join the celebration. Despite the overall bullish sentiment, Ethereum’s performance remained lackluster, unable to break the $3,000 mark for over five days. This underperformance becomes even more apparent when compared to Bitcoin, which has outperformed Ethereum by a significant 22% since the beginning of 2024.
The recent release of US economic data has had mixed effects on various asset classes, including cryptocurrencies. The consumer price index for April, which saw a 3.4% year-over-year increase as predicted, fueled some positive sentiment. However, the retail sales figures for the same month surprised investors with stability instead of the expected 0.4% increase. This hinted at potential economic stability that could reduce the need for further monetary stimulus from the US Federal Reserve.
The Federal Reserve’s current approach is to maintain interest rates above 5.25% as a long-term strategy to control inflation. However, they may still resort to injecting more money into the economy through measures such as purchasing government securities or reducing the discount rate for bank loans. While this injection of liquidity generally boosts investments in scarce assets like stocks, gold, and cryptocurrencies, it can also lead to increased inflation, diluting the immediate gains from rising asset prices.
The upcoming decision on May 23 by the US Securities and Exchange Commission regarding VanEck’s spot Ethereum exchange-traded fund (ETF) application has created an atmosphere of uncertainty for Ethereum. Traders are holding off on major moves until the decision is clear, as approval could propel Ethereum past current resistances while rejection could trigger a sharp correction. Analysts, such as Eric Balchunas from Bloomberg, have expressed skepticism about the approval of the spot Ethereum ETF due to concerns surrounding products involving native staking services, which could be classified as securities.
In the derivatives market, Ethereum’s future appears uncertain. The futures premium, or basis rate, for Ethereum has remained around 9%, indicating a neutral sentiment among traders. This stable rate suggests a general disinterest or cautious approach from the trading community, particularly in relation to the ETF’s approval. The options market also reflects this neutrality, with a balance between call and put options and no significant indication of bearish or bullish dominance.
Adding to the complexity, Ethereum’s supply mechanics have recently shifted towards inflation for the first time in 18 months due to a decrease in transaction fees. This shift could further dampen Ethereum prices, keeping them below the $3,000 threshold.
