Ethereum (ETH) futures ETFs have not performed as well as expected, and ETH on-chain data has also shown a relatively sluggish situation, which has attracted attention to the trend of the Ethereum market.

果粒橙C · 2023-10-10T08:29:27.000Z
Recently, the performance of the Ethereum (ETH) futures ETF has not performed as well as expected, and the ETH on-chain data also shows a relatively sluggish situation. The situation has drawn attention to Ethereum market trends. First, let’s take a look at the performance of the Ethereum Futures ETF. Although the market had previously been full of expectations for the Ethereum futures ETF, it turned out that its effect was not as expected. For some reasons, the product did not attract widespread market attention and participation after its launch. This has resulted in relatively low trading volumes for the Ethereum Futures ETF and reduced investor confidence in the value of its investment.
Recently, the performance of Ethereum (ETH) futures ETFs has not been as good as expected, and the ETH chain data has also shown a relatively sluggish situation. This situation has attracted people's attention to the trend of the Ethereum market.
First, let's take a look at the performance of Ethereum futures ETFs. Although the market was full of expectations for Ethereum futures ETFs, it turned out that their effects were not as expected. For some reasons, the product did not attract widespread attention and participation from the market after its launch. This made the trading volume of Ethereum futures ETFs relatively low, and investors' confidence in its investment value was weakened.
At the same time, we should also note the low level of ETH on-chain data. On-chain data refers to various transaction and activity data recorded on the Ethereum blockchain. Currently, the growth rate of ETH on-chain data is relatively slow, which may imply a decline in activity and transaction volume in the Ethereum ecosystem. This situation may be related to the market's confidence in Ethereum. Investors may temporarily wait and see, resulting in weak on-chain activities.
Overall, the failure of Ethereum futures ETF to meet expectations and the low level of on-chain data reflect the market's concerns about Ethereum. However, we cannot ignore Ethereum's important role in the blockchain field and its potential long-term development prospects. The current situation may be temporary, and Ethereum's performance is expected to improve as market confidence recovers and investor participation increases.
Institutional interest in Ethereum is limited amid bear market
In the context of the crypto bear market, six different Ethereum futures financial instruments officially started trading on October 2, but they have not yet rekindled institutional investors' enthusiasm for ETH. The total trading volume of the ETH futures ETF on the first day was less than $1.5 million. In contrast, according to Bloomberg data, the first-day trading volume of the first BTC futures ETF (BITO) in 2021 exceeded $1 billion. In other words, the net inflow of funds on the first day of the ETH futures ETF was less than 2% of BITO.
Duong, head of Coinbase Research, believes that there are several main reasons for the above differences:
First, the market timing of the ETF launch is different. Proshares' BTC futures ETF was launched during the 2021 crypto bull market cycle, when market liquidity was abundant, while the ETH futures ETF was launched during the current bear market cycle, when funds were severely scarce.
Second, investment advisors have different levels of familiarity. Investment advisors are generally more familiar with BTC, and BTC is easier to integrate into their clients’ portfolios. ETH is generally considered a more complex investment that has not been well understood and accepted in the traditional investment community.
Third, expectations change at the legal level. Judge Katherine Polk Failla marked ETH as a crypto commodity in the recent court ruling on Risely vs Uniswap. This may have raised market expectations for ETH spot ETFs, while ETH futures ETFs have lost their enthusiastic market response.
Judging from the flow of funds, the crypto bear market is still having a huge impact on institutional capital. According to Coinshares, there have been net outflows of funds in 24 of the 39 weeks since 2022, accounting for 61.5% of the entire period. The change in institutional interest in crypto assets can also be seen from the fund flow data: as of October 4, ETH has seen an outflow of $101 million this year, while BTC has seen an inflow of $219 million in the same time frame. However, the recent weekly net inflows of BTC and ETH are similar, at $16.4 million and $12.9 million, respectively.
Overall, although the ETH futures ETF has been cold, its trading volume is still at a normal level for a new ETF, and it has also played a positive role in institutional investment interest. However, due to the bear market background and other reasons, it will take the overall crypto market to warm up before it can attract more institutional funds.
Potential risks of Ethereum staking
On October 5, JP Morgan released a research report pointing out the centralization problem of Ethereum's network and pointed out that the ETH staking yield has dropped from 7.3% before the Shanghai upgrade to 5.5%. Compared with the still rising yields in traditional financial markets, ETH's attractiveness as an investment target has declined.
The report states that the top five liquidity staking providers, Lido, Lido, Coinbase, Figment, Binance, and Kraken, control 50% of ETH staked, with Lido accounting for almost a third of the total ETH staked.
The liquidity staking platform Lido is seen by the cryptocurrency community as a better alternative to centralized exchange staking platforms. Currently, in order to mitigate centralization risks, Lido has been expanding its list of node operators, aiming to prevent any single entity from controlling most of the staked ETH.
In addition, in order to combat the centralization risk of the Ethereum blockchain, the Ethereum community has begun to promote distributed validator technology (DVT), such as SSV, Obol, etc. DVT allows multiple node operators to run a validator. This is done to reduce the risks associated with validators without affecting the blockchain.
Another concern raised by JP Morgan is the practice of re-hypothecation of liquidity collateral assets. This involves the problem of reusing liquidity tokens as collateral in various DeFi protocols. If the value of the pledged assets suddenly plummets or is compromised due to malicious attacks or protocol vulnerabilities, this practice may trigger a chain reaction of liquidations.
Ethereum gas fees hit bottom
According to statistics from the on-chain analysis platform Santiment, Ethereum gas fees have fallen to their lowest level in nearly a year. The average cost of Ethereum on-chain transactions in the past week was only $1.13, which is significantly lower than in early May. It is worth noting that the last time the gas fee was below $1.15, the ETH price was right at the bottom.
L2 is paving the way for scaling Ethereum
Ethereum gas fees have dropped significantly, related to the adoption of L2 scaling solutions. Due to its advantages in cost and efficiency, a large number of users have poured into L2, causing a significant increase in L2's block space demand.
According to L2Beat, transaction activity for L2 scaling solutions has seen a significant uptick in 2023. Based on data from the most recent week, L2’s TPS has reached 5.78 times that of the Ethereum blockchain.
Essentially, L2 is accomplishing its original purpose, easing the transaction burden on the Ethereum main chain and assisting its expansion. Santiment believes that lower gas fees can promote the use of the Ethereum network and attract more decentralized applications and smart contracts. In the long run, when the Ethereum network is more adopted, the price of ETH will also be boosted.
Recently, Grayscale Research also pointed out that L2 is paving the way for the expansion of Ethereum. From a functional point of view, L2 can enhance the scalability of Ethereum and reduce the network cost of users by 100 times. In August this year, Coinbase launched BASE (Ethereum's L2 blockchain), which also marked a strong recognition of the Ethereum ecosystem and opened its decentralized applications to 100 million Coinbase users.
Coinbase is trying to pave the way for mass adoption of DAPPs based on its own Ethereum L2 BASE. If some alternative L1s fail to gain traction due to small security budgets and lack of liquidity, integrating into Ethereum L2 may become a more attractive option.
Usage of Ethereum’s L2 scaling solution has been growing over the past year, with total daily active addresses for L2 surpassing the leading L1.
In addition to active addresses, total value locked (TVL) is equally important, reflecting the degree to which users trust their funds in a particular blockchain. The TVL of the best performing L2 (including Arbitrum and Optimism) exceeds that of Ethereum's L1 competitors (Solana and Avalanche), which shows the market's general trust in the Ethereum ecosystem as a whole and the appeal of scaling solutions.
As the network scales, more activity will move to the cheaper L2. In return, L2 accumulates value directly back to Ethereum. Specifically, for every transaction on L2, users pay a transaction fee. L2 keeps a portion of the fee (currently the average profit margin is about 1/4), while the Ethereum network validators capture the remaining approximately 3/4.
For every transaction sent by L2, the Ethereum network also burns a small portion of the total ETH supply. Therefore, incremental activity on Ethereum L2 directly accumulates value for ETH. If Ethereum's L2 continues on a positive trajectory, they will solidify Ethereum's position as the leading L1 blockchain.
The ETH balance on centralized platforms hits a 5-year low
According to Santiment data on October 5, the number of ETH in cryptocurrency trading platforms has dropped to 10.66 million, the lowest since May 2018. In contrast, 115.88 million ETH are stored outside centralized trading platforms, which is also the highest value in history.
On October 4, approximately 110,000 ETH (worth more than $180 million) were withdrawn from centralized trading platforms, which was the largest single-day ETH outflow from centralized trading platforms since August 21. The above phenomena are generally regarded as the market's long-term optimism about the valuation of ETH assets, demonstrating investors' long-term confidence.
Therefore, investors should remain calm and pay close attention to the development of the Ethereum market. With the advancement of industry technology and changes in market sentiment, Ethereum may have new opportunities and growth potential. Although the current situation is not optimistic, in the long run, Ethereum still has great development potential and deserves our continued attention.