Last week, market sentiment towards ETH took a dramatic turn as the U.S. Securities and Exchange Commission (SEC) unexpectedly approved a spot ETH ETF plan.
The SEC approved the 19b-4 applications of the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (Cboe), and Nasdaq. The S-1 forms of key issuers such as BlackRock, Fidelity, and VanEck are under review, and trading in the ETH ETF will only be officially launched after these forms receive final approval.
Kaiko Analysis: Implications of the surge in implied volatility
Kaiko analyzed that the implied volatility of ETH's recent expiration was less than 60% on May 20, but rose sharply to nearly 90% on May 22, and then fell back before the end of this week. In addition, short-term implied volatility exceeded long-term indicators, a situation called an inverted volatility structure, which usually indicates market pressure.
Derivatives market reaction
The dramatic change in ETH sentiment is also evident in derivatives markets. In just three days, ETH perpetual futures funding rates surged from their lowest levels in more than a year to multi-month highs. Open interest in ETH futures hit an all-time high of $11 billion, indicating a massive influx of capital into the space. The ETH to BTC ratio has also risen, though it remains below its February highs.
The general rise in the spot market
Both the US and offshore spot markets have seen strong net buying since May 21, after offshore exchanges had been recording net selling.
Grayscale ETHE is a short-term concern
The launch of an ETH ETF could lead to selling pressure on ETH as Grayscale’s ETHE, which has traded at a discount of between 6% and 26% over the past three months, could see outflows or redemptions. ETHE currently has over $11 billion in assets and is the largest ETH investment vehicle.
Comparison with BTC ETF: ETH selling pressure can reach 30% of Coinbase’s daily trading volume
Referring to the precedent of Bitcoin ETFs, GBTC saw $6.5 billion in outflows in its first month of trading, about 23% of its assets under management (AUM) at launch. If ETHE sees similar outflows, this could mean an average daily outflow of $110 million, equivalent to 30% of the average daily trading volume of ETH on Coinbase. However, GBTC outflows were ultimately offset by inflows from other BTC ETFs, making the overall market impact of ETHE redemptions uncertain.
Market Depth is Another Consideration
ETH’s market depth on centralized exchanges is currently around $226M, 42% below the pre-FTX average. Only 40% of market depth is concentrated on US exchanges, compared to around 50% at the beginning of 2023.
