According to PANews, the launch of the spot Ethereum ETF has been met with significant trading volume, indicating a successful introduction. However, the price of ETH has seen a decline post-launch. This article explores the reasons behind this trend, the future price trajectory of ETH, and two major upcoming catalysts for Ethereum.
The underperformance of ETH compared to BTC can be attributed to two main factors. Firstly, the launch of the spot ETH ETF is considered a 'sell the news' event, similar to what occurred with the spot BTC ETF. Since the approval of the spot ETH ETF was known months in advance, potential buyers had ample time to purchase ETH, leading to a sell-off once the ETF was launched. Secondly, the launch of the ETH ETF unlocked $9 billion worth of ETH in the Grayscale Ethereum Trust, which had been locked for years. This has led to significant selling pressure as holders are now able to sell their ETH.
The duration of this price decline is uncertain. In the case of BTC, the price bottomed out approximately two weeks after the launch of the spot BTC ETF, followed by a period of consolidation and then a new all-time high. If there is strong demand for the spot Ethereum ETF in the coming weeks, ETH could follow a similar pattern. However, this would require a positive net flow into the ETH ETF. For instance, yesterday saw an outflow of $133 million from the ETH ETF due to selling pressure from the Grayscale Ethereum Trust.
There are also short-term concerns for ETH. However, two significant catalysts could positively impact Ethereum's future. The first is the potential approval of Ethereum ETF staking. This could significantly increase demand for the spot Ethereum ETF. Although the annual staking yield of around 3.2% may seem modest, it is attractive due to ETH's low annual inflation rate and the ability to earn staking rewards. According to an SEC commissioner, Ethereum ETF staking is 'always reconsiderable,' suggesting that its approval is only a matter of time.
The second catalyst is the upcoming release of Pectra, Ethereum's next hard fork. This major upgrade is expected to occur in late Q4 2023 or Q1 2024 and will introduce several significant changes. These include making Ethereum account addresses more programmable and increasing the maximum stake for ETH validators from 32 to 2048 ETH. By enhancing the programmability of Ethereum account addresses, Pectra will bring substantial on-chain user experience improvements. For example, it will support batch transaction sending, enable social recovery features for wallets, and allow dApps to pay users' gas fees. Such user experience upgrades are crucial for the mass adoption of cryptocurrencies.
