Although the capital flow into Spot ETH ETFs is increasing strongly, traders remain cautious, in a context of increasing competitive pressure and Ethereum's continued low on-chain activity.
Highlights:
- Futures data shows traders remain cautious despite recent ETH price increases and strong ETF capital flow.
- Ethereum faces competitive pressure from Solana and BNB Chain as network activity development remains stagnant.
Despite ETH's price increasing by 56.5% in just 30 days, derivatives market data reveals a prevailing cautious sentiment. The primary reason may stem from ETH's continuous failure to break through the psychological resistance level of $4,000 since March 2024 - a psychological barrier the market has yet to conquer. Additionally, prolonged weak on-chain activity is causing many investors to lack confidence in the current upward trend. The combination of hesitant sentiment and unconvincing fundamental data is creating resistance to Ethereum's potential short-term breakthrough.
The annual funding rate for ETH's perpetual futures contract dropped to just 9% on Thursday, reflecting a decline in demand for leveraged longing positions. This contrasts with the period from Friday to Monday, when the funding rate reached around 19%, indicating moderate investor interest. Notably, the funding rate has returned to levels similar to July 7th, when ETH was trading around $2,600. This is surprising, as ETH has since increased by over 46%, but the leveraged sentiment seems not to have kept pace with the price increase - a sign that doubt and caution still persist in the market.
ETH Traders Disappointed as TVL and Network Activity Decline
The increasing caution among Ether (ETH) traders largely stems from a significant decline in on-chain activity and Total Value Locked (TVL) in the Ethereum ecosystem. Specifically, Ethereum's TVL has decreased by 11% in 30 days, from 26.4 million ETH to 23.4 million ETH on Wednesday, indicating capital is leaving the network. This becomes more concerning when compared to competitors:
- Solana recorded only a 4% TVL decrease in SOL terms
- BNB Chain even increased TVL by 15% in BNB terms during the same period.
This relative weakness in network activity is increasing investor disappointment and reducing confidence in ETH's ability to soon break the $4,000 mark without significant on-chain performance improvements.
Network activity is crucial for Ethereum's sustainability, as transaction fees are not only used to reward validators but also serve as an incentive for Decentralized Applications (DApps) to build and maintain ecosystems on this platform. Therefore, even if Ethereum leads in TVL and active developer numbers, these advantages become less meaningful if on-chain activity continues to stagnate compared to competitors like Solana or BNB Chain. Shrinking market share in transactions and capital flow could directly impact Ethereum's attractiveness to long-term investors and new projects.
To assess whether ETH whales and market makers have become more cautious, monthly ETH futures contracts require careful monitoring. Typically, these contracts should trade with an annual premium of 5% to 10% above spot prices, reflecting opportunity costs and longer maturity. If this premium decreases, it could indicate professional investors are being cautious and not ready to commit long-term, even as ETH has recently increased significantly.
Currently, the annual premium for ETH futures contracts fluctuates around 6%, down from 8% recorded on Tuesday. Over the past three weeks, this index has remained in a neutral zone, suggesting the market sentiment is not strongly leaning towards optimism, despite a significant price recovery. Notably, the decline in leveraged price increase demand is occurring simultaneously with increasing capital flow into Spot ETH ETFs. For nearly three consecutive weeks, ETH ETFs have recorded positive net capital flow, reflecting clear interest from institutional investors.
The contrast between increasing ETF capital and stagnant or declining futures contract premiums may indicate investors are still hesitant to use leverage or bet on short-term trends, instead choosing long-term accumulation strategies through ETF channels.
The lack of strong buying momentum around ETH's $3,800 price range partly reflects growing concerns about competition from rivals like Solana and BNB Chain, platforms considered more user-friendly due to superior scalability at the base infrastructure (Layer-1) level. Additionally, the increase in ETH holdings by enterprises, while driving recent price increases, is causing some investors to express concerns about long-term sustainability. According to data from Strategicreserve.xyz, at least nine publicly listed companies have accumulated 2,000 ETH or more, including Bitmine Immersion Tech (BMNR), SharpLink Gaming (SBET), and The Ether Machine (DYNX).
If the accumulation trend from these organizations continues, Ethereum can completely aim for the $5,000 target in the next price cycle. However, in the short term, traders remain cautious and are not entirely convinced that the $4,000 mark is within reach, especially when on-chain factors and technical indicators still show divergence and a lack of clear momentum.
This article is for general information purposes only and is not intended to be, nor should it be considered, legal or investment advice.
