Will ETH enter a bull market? Analysis: ETF daily average net outflows may reach $110 million

Last week, there was a dramatic shift in market sentiment towards ETH as the U.S. Securities and Exchange Commission (SEC) unexpectedly approved plans for a spot ETH ETF.

The SEC approved 19b-4 applications from the New York Stock Exchange (NYSE), Chicago Board Options Exchange (Cboe), and Nasdaq. S-1 filings from key issuers such as BlackRock, Fidelity, and VanEck are currently under review, and trading of the ETH ETF will officially launch once these filings receive final approval.

Kaiko Analysis: Implications of Surging Implied Volatility

Institutional Kaiko analysis shows that the implied volatility of ETH, which was below 60% on May 20, spiked sharply to nearly 90% by May 22, before dropping back by the end of the week. Additionally, the short-term implied volatility surpassed the long-term indicator, a situation known as an inverted volatility structure that typically indicates market pressure.

Reaction in the Derivatives Market

The drastic shift in ETH sentiment is also evident in the derivatives market. Within just three days, the funding rate for ETH perpetual futures surged from multi-year lows to highs not seen in months. The open interest for ETH futures reached a historical high of $11 billion, indicating a significant influx of capital into the space. The ETH to BTC ratio also saw an increase, although still below the peak in February.

Broad Uptrend in Spot Markets

Since May 21, both U.S. and offshore spot markets have seen strong net buying, with offshore exchanges previously recording net selling.

Short-Term Concerns with Grayscale ETHE

The launch of an ETH ETF could lead to selling pressure on ETH, as Grayscale's ETHE may experience outflows or redemptions, with the fund trading at a discount ranging from 6% to 26% over the past three months. ETHE currently holds over $11 billion in assets, making it the largest ETH investment vehicle.

Comparison with BTC ETF: Impact of ETH Selling Pressure on Coinbase Daily Trading Volume

Referencing the precedent of Bitcoin ETFs, GBTC saw outflows of $6.5 billion within the first month of trading, accounting for approximately 23% of its AUM at launch. If ETHE experiences similar outflows, this could mean daily average outflows of $110 million, equivalent to 30% of ETH's daily trading volume on Coinbase. However, the outflows from GBTC were eventually offset by inflows into other BTC ETFs, making the overall market impact of ETHE redemptions uncertain.

Market Depth as Another Consideration

The market depth of ETH on centralized exchanges is currently around $2.26 billion, 42% lower than the average level before the FTX incident. Only 40% of the market depth is concentrated on U.S. exchanges, compared to approximately 50% in early 2023.