10x Research: How Will ETH Prices Move in the Post-ETF Era?

Author: 10x Research

Compiled by: Azuma, Odaily Planet Daily

Editor's Note: In the early hours of July 23, Beijing time, the U.S. Securities and Exchange Commission (SEC) officially approved the Ethereum spot ETF, allowing multiple ETFs to officially start trading on Tuesday. However, perhaps due to the market having already digested the expectations of the ETF approval, the price of ETH did not show significant fluctuations after the SEC's announcement, reporting at 3442.62 USDT at the time of writing, with a 24-hour decline of 1.3%.

Currently, one of the most concerning issues in the market is undoubtedly the subsequent trend of ETH prices, especially after the ETF officially opens for trading tomorrow. Will the influx of funds brought by the ETF boost the price of ETH? Is there a potential "buy the rumor, sell the news" trend? In response to these questions, the investment institution 10x Research, which is keen on market predictions, has once again released an analysis of the future direction of ETH.

Below is the original content from 10x Research.

Let’s first review the approval process of the Ethereum spot ETF.

On May 20, the SEC unexpectedly requested exchanges to update their 19b-4 filing materials, indicating that the application progress for the Ethereum spot ETF had made substantial progress, and the market raised the approval probability of this ETF from 25% to 75% based on this change.

On May 23, the SEC officially approved the 19b-4 filing for the Ethereum spot ETF, resolving one of the biggest issues before the ETF's listing.

In the seven days following this, the open interest in Ethereum futures surged from $8.8 billion to $13 billion, and the price of ETH jumped from $3,065 to a short-term peak of $3,959.

This morning, the SEC has officially completed the final approval of the Ethereum spot ETF, allowing this trading product to start trading tomorrow. We have witnessed similar milestone events multiple times in the past, such as the launch of Bitcoin futures in December 2017, the listing of Coinbase in April 2021, the launch of Bitcoin futures ETF in October 2021, and the listing of Bitcoin spot ETF in January 2024. All of these milestones were followed by short-term corrective trends.

Currently, trading users are continuously asking us whether ETH will exhibit a similar trend…

Although the price of ETH once rose to $3,959 at the end of May, it also fell below $3,000 in early July. This itself indicates that traders lack confidence in the sustained rise of ETH prices. Although ETH has rebounded to $3,500 before this ETF approval, we suspect that many people will choose to sell for profit immediately after the ETF is launched ------ possibly even before the launch.

Moreover, the marketing efforts surrounding the Ethereum spot ETF are relatively low, which may directly lead to lower interest from retail or institutional investors in this ETF. BlackRock CEO Larry Fink recently gave a television speech, but he only promoted Bitcoin rather than Ethereum. This indicates that (at least in the initial stage) BlackRock's clients have relatively limited interest in ETH.

When the Bitcoin spot ETF was released, the annualized funding rate in the futures market was close to 15%, and it even rose to 70% in February, attracting the attention of many arbitrage funds ------ they would buy the ETF and hedge with futures to earn arbitrage profits. This buying action reinforced the bullish sentiment around BTC.

Currently, the annualized funding rate in the Ethereum futures market is only 7-9%, which does not provide much attraction for arbitrage institutions, especially considering the capital holding cost of at least 5% (federal funds rate). Compared to the situation with the Bitcoin spot ETF in February, the Ethereum spot ETF is expected to attract much less inflow of arbitrage funds, thereby weakening the optimistic sentiment regarding ETH.

Note: The Stochastic indicator for Ethereum (greater than 90% indicates overbought).

From a technical perspective, the Stochastic indicator for ETH has basically peaked, which means that now is a good shorting opportunity ------ we will use the recent high of 3560 as the stop-loss level.

Relatively speaking, we prefer to hedge shorting ETH while going long on BTC, rather than directly shorting. Traders can also sell Ethereum put options while buying Bitcoin call options. However, options are relatively expensive, with an implied volatility of 65% for the expiration on September 27, while the realized volatility over 30 days is only 50%, indicating that the implied volatility contains significant premiums.

From the perspective of market discussion heat, discussions about Solana during this cycle are also significantly higher than those about Ethereum. The Solana ecosystem has fostered a meme token craze, while Ethereum has missed this opportunity due to high Gas fees. We can cite various data to prove that Solana's popularity is higher than Ethereum's, such as Solana currently having 14.2 million active addresses, while Ethereum has only 7.5 million…

Ethereum's market dominance reached a high of 18.4% a month ago, and now it has fallen to 17.0%. The lack of market interest is also reflected in the Gas prices that have failed to rebound. The Dencun upgrade in March 2024 significantly reduced network fees, but the number of network transactions has stagnated, and the number of active addresses is similar to three years ago, with almost no growth in the Ethereum network.

In a zero-interest trade finance environment, Ethereum's staking yield advantage was a key reason for the DeFi Summer in 2020 and 2021. Now, Ethereum's staking yield is only 3.12%, and Coinbase's Ethereum staking yield is only 2.91%. Although the ETF itself does not involve staking, from a yield perspective, the opportunity cost is a key reason for the current low demand for ETH.

Compared to BTC, the β coefficient of ETH's rise is also weakening. Since the beginning of this bull market, ETH's performance has been underwhelming, if calculated from October 2022, ETH's performance lags behind BTC by 40%.

Considering the above factors and the fact that the ETF issuers have not conducted large-scale marketing activities; coupled with some traders choosing to close some long positions when the news lands; and also accounting for potential outflows from Grayscale… this indeed provides reasons to be bearish on ETH, at least in the initial stage.