As a researcher with experience in the cryptocurrency market, I believe that the recent U.S. macroeconomic data releases have had a significant impact on the crypto markets, including Bitcoin (BTC) and Ethereum (ETH). While the positive inflation data and the neutral retail sales figure led to an overall 5.5% increase in total cryptocurrency capitalization, Ether failed to fully participate in this rally.
On May 15th, the overall value of the cryptocurrency market rose by 5.5% due to the publication of US inflation and retail sales figures. However, Ether (ETH) did not fully benefit from this bullish trend. In fact, Ether has not closed above $3,000 for over five days and has lagged behind Bitcoin (BTC) by 22% since the beginning of 2024.
U.S. macroeconomic data backs the rally in some scarce assets
The crypto market rejoiced upon learning that the U.S. Consumer Price Index (CPI) rose by 3.4% year-over-year in April, meeting market predictions. However, investors grew anxious when the retail sales data for the same month was revealed on May 15th. This information suggested no change from March’s figures, whereas economists had anticipated a 0.4% improvement. The uncertainty brought by this discrepancy heightened the possibility of the U.S. Federal Reserve taking steps to bolster the economy.
As a researcher studying monetary policy, I would express it this way: If the Federal Reserve in the United States chooses to keep interest rates above 5.25% for an extended duration to curb inflation, they might consider alternative measures. For instance, they could buy government securities to increase the money supply or lower the discount rate at which banks borrow from them. By doing so, even a subtle indication of ongoing liquidity support can influence economic forecasts and actions.
Surprisingly, a slower economic performance may signal the infusion of greater financial resources into the economy. This phenomenon can lead to increased investment in limited assets such as stocks, gold, and cryptocurrencies. In order to support this growth and prevent an economic downturn, governments often resort to issuing more debt for expansionary measures. Over the long term, inflation is expected to increase due to the increased money supply, regardless of any adjustments to interest rates.
Analysts argue that Ethereum’s failure to break through the $3,000 barrier may be due in part to the pending SEC decision on VanEck’s Ethereum spot ETF application on May 23rd. Traders are hesitant to invest given the unclear outcome of this event, as a potential rejection could trigger a correction in the market despite positive long-term expectations for Ethereum.
Eric Balchunas, a seasoned ETF analyst at Bloomberg, has raised questions about the likelihood of a spot Ethereum ETF being authorized in 2024, considering the regulatory caution towards investments that could be deemed securities, particularly those involving native staking mechanisms. This same degree of wariness is reflected in the derivatives market for Ethereum as well.
Ether’s derivatives markets reflect a lack of optimism
Examining the ETH futures and options markets is crucial for gaining insight into the strategies of seasoned traders. In a stable market, Ether futures contracts are usually valued between 5 percentage points and 10 percentage points above the current ETH spot prices. This pricing difference accommodates the longer settlement period associated with these contracts.
As a crypto investor, I’ve noticed that the Ether futures premium, which represents the difference between the price of futures contracts and the current spot market price, has been hovering around 9% for the past two weeks. This stable basis rate indicates a lackluster outlook among traders regarding the impending decision on an ETF for Ether spots. Consequently, the overall sentiment in the market appears neutral.
In the world of options trading for Ethereum, the desire for call (purchase) and put (sell) contracts is relatively equal. The cost of these contracts hovers around comparable figures. However, it’s common knowledge that if traders anticipate a decrease in Ether prices, the delta skew will likely surpass 7%. On the other hand, during periods of heightened market enthusiasm, the skew often dips below -7%.
If there was a greater appetite for buying call options on Ethereum in preparation for the spot ETF announcement, large investors and market manipulators might have boosted the cost of these contracts that shield against downside risks. This move signaled their belief in Ethereum’s price surge and their intention to profit from traders’ readiness to pay a premium for potential profits.
As an analyst, I’ve been trying to identify the specific reasons why Ethereum hasn’t maximized its potential gains in the cryptocurrency market lately. However, it’s clear that Ethereum Exchange-Traded Fund (ETF) approval remains a significant concern for ETH investors. Furthermore, there are other contributing factors at play, such as the ETH supply becoming inflationary for the first time in 18 months. This inflation is due to decreased transaction fees which, unfortunately, may be keeping Ethereum’s price below the $3,000 mark.
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2024-05-15 22:44