ETH Price Slides 10% After Cancun Upgrade, Analysts Lower Expectations for Spot Ethereum ETF Approval
Since the upgrade in Cancun last week, the price of Ethereum has dropped by 10%, and analysts have gradually lowered their expectations for the approval of a spot Ethereum ETF. Will ETH further decline? This article is sourced from an article by BloFin and translated and written by Foresight News.
Summary:
– Risks of Ethereum Securitization
– SEC does not reveal whether Ethereum is a security
– Probability of Bitcoin price manipulation is lower than that of Ethereum
– Perspectives of Whales
– Is a Spot ETF important?
– Compared to a spot Bitcoin ETF, the negative impact of PoS mechanism, price manipulation risk, and securitization risk significantly reduce the probability of spot Ethereum ETF approval. However, whether or not the spot Ethereum ETF is approved will ultimately not affect the breakthrough growth of ETH price.
– It is just that with the rise of other competitors, Ethereum’s market share may be difficult to further expand.
– Many investors believe that after the approval of a spot Bitcoin ETF, the approval of a spot Ethereum ETF is “only a matter of time”. Previously, some analysts believed that the approval of a spot Ethereum ETF, with BlackRock being one of the applicants, could even reach a probability of 80%.
– However, as more details were disclosed, analysts gradually lowered their expectations for the spot Ethereum ETF.
– Analyst concerns are not unfounded. Although an Ethereum futures ETF was approved last year, with the listing of a spot Bitcoin ETF, the chairman of the U.S. Securities and Exchange Commission (SEC) seems to have found the criteria for auditing spot cryptocurrency ETFs—the absence of securities attributes or becoming a securities risk “commodity token”.
– Undoubtedly, Bitcoin is one of the “gold standards” in the eyes of the U.S. SEC:
– Bitcoin is similar to mined gold, with limited reserves, non-renewable, and requiring specific costs for acquisition.
– The Bitcoin network is stable and mature, and factors such as consensus mechanism upgrades will not cause significant changes in the foreseeable future, just like wheat will not become corn.
– It has never undergone an ICO or any form of financing, and its market gradually formed through transactions between users, just like the formation of the Chicago livestock and grain markets, which is also a classic case.
– The number of Bitcoin holders is large and diversified, and the risk of price manipulation is relatively low.
– However, for Ethereum, it seems that these criteria have not been fully met.
– Although the introduction of new mechanisms in Ethereum 2.0 and its subsequent upgrades will cause ETH to exhibit a deflationary trend, reducing its total market circulation, under the PoS mechanism, ETH will continue to be issued, theoretically without an upper limit, and its “inflation” and “deflation” are closely related to its own network activity.
– For example, when Ethereum network activity is low (such as in July 2023), the “inflation” of ETH has reappeared.
– Some people compare Ethereum to a “renewable digital commodity”, similar to renewable agricultural products like corn and soybeans, emphasizing that it can be “planted” and “harvested” in the digital space, and likening the PoS mechanism to planting—holding 32 ETH is equivalent to owning “seeds” that can participate in staking and earn rewards.
– However, holding crops does not bring voting rights, but ETH holders can vote under the PoS mechanism, and the more they hold, the greater their voting rights and impact on the future of the Ethereum network. In addition, it is difficult to find a more reasonable explanation that makes ETH look more like a “commodity” than a “security”.
– The Ethereum network has been continuously upgraded. Among them, significant upgrades occurred in the second year after the listing of Ethereum futures on the Chicago Mercantile Exchange (CME)—its consensus mechanism changed from PoW to PoS, and a mainnet fork occurred. Ethereum is like the ship of Theseus, constantly upgrading and changing, and there are significant differences between ETH in March 2024 and ETH in March 2021 in terms of essence.
– ETH conducted an ICO financing in 2014, and this financing behavior may classify ETH as an “asset with security attributes”. Because the U.S. SEC and financial institutions in other countries have expressed that “ICO tokens may be considered securities”. For assets with controversial attributes, the U.S. SEC may consider them more carefully.
– Whales holding ETH. According to statistics from Glassnode, nearly 55% of the ETH supply (about 66 million) is held by 1,041 addresses, with an average balance of more than 10,000 ETH. In contrast, retail holders own less than 45% of the ETH supply. At the same time, considering that in the PoS mechanism, token holdings are directly linked to voting rights, the holders of these 1,041 addresses can significantly influence the upgrade and operation of the Ethereum network.
– In contrast, Bitcoin holders do not have voting rights and will not have a significant impact on the execution of the Bitcoin network. Since 2009, the distribution of Bitcoin holders has become quite decentralized. As of March 2024, whales holding more than 1,000 BTC only account for about 40% of the total circulation, and the number of whale addresses has reached 2,100, making the possibility of Bitcoin price manipulation significantly lower than that of Ethereum.
– Of course, the U.S. Securities and Exchange Commission (SEC) has not relaxed, at least not yet. In public filings, the SEC expresses concerns about the potential risks of the PoS mechanism in Ethereum:
– “Do ETH and its ecosystem have certain characteristics, including the PoS mechanism and the control or influence of a few individuals or entities that are too centralized, that would cause concerns about Ethereum being susceptible to fraud and manipulation?”
– In summary, due to the existence of “securitization risks”, although we expect the approval of a spot Ethereum ETF, we must also be prepared for the SEC’s veto.
– Compared to the situation when a spot Bitcoin ETF was approved, spot whales and derivatives traders do not seem to have high expectations for the approval of a spot Ethereum ETF and are prepared for this.
– From on-chain data, although the selling behavior of miners in each quarter may have some impact on statistical data, the number of addresses holding more than 100 BTC has significantly increased since May 2023. Compared to the first quarter of 2022 and the first half of 2023, the impact of miners’ selling behavior on the number of addresses has significantly weakened, indicating that many spot whales have bought large amounts of BTC before the approval of a spot Bitcoin ETF.
– However, Ethereum’s on-chain data does not show similar signs. Even using a relatively loose standard, the number of addresses holding more than 32 ETH has been decreasing since January 2023, and the speculative hype for the approval of a spot Ethereum ETF has not significantly affected this downward trend, but has accelerated the decline.
– If we only consider addresses holding more than 1,000 ETH, we can draw the same conclusion that whales seem to be selling their ETH to profit from speculation and optimism.
– In the options market, we also found some clues. After the announcement of the application for a spot Bitcoin ETF, the skewness (a statistical concept used to describe the asymmetry of data distribution, with negative skewness and positive skewness) of Bitcoin and ETH futures options both significantly increased and reached a peak in November 2023, indicating that at that time, options traders were more inclined to bet on the market price rising (bullish).
– In contrast, the announcement of the application for a spot Ethereum ETF did not cause additional bullish sentiment among options traders, and the increase in skewness of futures options in February this year is more likely due to the impact of liquidity regression.
– Undoubtedly, a spot ETF is indeed important, and its approval will boost the prices of related cryptocurrencies. After the approval of a spot ETF, the additional liquidity support from the U.S. stock market has driven the price of Bitcoin to rise by over 71% from the beginning of the year, and the price of Bitcoin has also surpassed $72,000, further reaching a new all-time high.
– It is worth noting that although ETH’s performance in terms of exchange rate is relatively weaker than that of BTC, in terms of price increase, ETH’s price performance is not inferior to BTC, and its price increase since the beginning of the year is slightly better than BTC.
– ETH has performed well recently, which depends on several factors:
– On the one hand, when the price of Bitcoin rises significantly, the inertia of cryptocurrency market investors will prompt them to sell Bitcoin and buy Ethereum, “grafting” the cash liquidity stored in Bitcoin to the Ethereum and other cryptocurrency markets. At the same time, the rapid flow of liquidity also provides more support for Ethereum’s price, and Ethereum’s relatively higher volatility brings higher growth potential.
– Therefore, in the medium to long term, with more cash flowing into the cryptocurrency market, the rise in Ethereum’s price is expected and has already been reflected in the prices in the derivatives market—the continued positive skewness of long-term call options is the best response to investors’ bullish sentiment, and a new high in Ethereum’s price is only a matter of time.
– The approval of a spot ETF will only accelerate the above process, but if it is not approved, it does not matter. Ethereum’s price may experience some fluctuations or even a significant decline. However, in a bull market environment, the gaps caused by the decline will be quickly filled, and the upward trend of Ethereum’s price will not fundamentally change.
– It is worth noting that if a spot ETF fails to be approved, Ethereum will need to face competition from other competitors within the cryptocurrency market—SOL has outperformed BTC in the past 6 months, and other public chain tokens are also eager to try.
– Although Ethereum’s leading position will not be challenged temporarily, other competitors will undoubtedly divert the cash liquidity that originally belonged to Ethereum. As central banks around the world generally adopt relatively stable monetary policies, the process of liquidity flowing back into the cryptocurrency market will be “relatively slow and steady”. Therefore, competing for existing cash liquidity will be one of the main challenges that Ethereum will face.