Last week, market sentiment towards ETH took a dramatic turn with the U.S. Securities and Exchange Commission (SEC) unexpectedly approving plans for a spot ETH ETF.
The SEC approved the 19b-4 filings of the New York Stock Exchange (NYSE), the Chicago Board Options Exchange (Cboe) and the Nasdaq (Nasdaq). S-1 forms from key issuers such as BlackRock, Fidelity and VanEck are under review, and trading in the ETH ETF will not be officially launched until these forms are finally approved.
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ToggleKaiko Analysis: What the Implied Volatility Surge Means
Agency Kaiko analyzed that the implied volatility of ETH's recent expiry rose sharply from less than 60% on May 20 to nearly 90% on May 22, and then fell back before the end of the week. Additionally, short-term implied volatility exceeds longer-term indicators, a condition known as an inverted volatility structure that often signals market stress.
Derivatives market reaction
The sharp change in ETH sentiment is also evident in the derivatives market. 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 reached an all-time high of $11 billion, indicating significant capital inflows into the space. The ETH to BTC ratio has also increased, although it is still below its February highs.
General rise in spot market
Both the U.S. and offshore spot markets have seen strong net buying since May 21, after offshore exchanges had been recording net selling.
Grayscale ETHE becomes a short-term concern
The launch of an ETH ETF could lead to selling pressure on ETH as there could be outflows or redemptions from Grayscale's ETHE, which has seen discounts ranging from 6% to 26% over the past three months. ETHE currently has over $11 billion in assets and is the largest ETH investment vehicle.
Comparison with BTC ETF: The impact of ETH selling pressure can reach 30% of Coinbase’s daily trading volume
Following the precedent of Bitcoin ETFs, GBTC saw $6.5 billion in outflows in its first month of trading, accounting for approximately 23% of its assets under management (AUM) at launch. If ETHE experiences 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, leaving the overall market impact of ETHE redemptions uncertain.
Market depth is another consideration
ETH’s market depth on centralized exchanges is currently approximately $226 million, which is 42% lower than the pre-FTX average. Only 40% of market depth is concentrated on U.S. exchanges, compared with about 50% at the beginning of 2023.
