Ether Price Drops by 26% Following ETF Launch as Supply Expands by 60,500 ETH

The recent launch of Ether-based exchange-traded funds (ETFs) in the U.S. was expected to be a major milestone for the world’s second-largest cryptocurrency. However, instead of igniting a bullish rally, Ether has faced an unexpected 26% price drop since the ETFs’ debut. This Ether price drop has raised alarm bells among investors and analysts, who are now scrutinizing the factors behind the decline. The stark contrast between market expectations and Ether’s actual performance is driving speculation about potential regulatory challenges, macroeconomic pressures, and the overall impact of the ETF rollout on Ethereum’s market dynamics.

A Historic Launch- Ether Price Drop

The launch of the first Ether ETFs in the U.S. was expected to be a game-changer for Ethereum, providing investors with a new way to gain exposure to Ether without directly holding the cryptocurrency. Many anticipated that this development would mirror the impact seen with Bitcoin ETFs, which had previously fueled significant price increases. However, the reality has been starkly different for Ether.

Since the launch of the spot Ether ETFs, which debuted for trading on July 23 , Ether’s price has plummeted by over 26%, settling at $2,572 as of August 19, 2024. This Ether price drop is particularly surprising given the anticipation and excitement leading up to the launch. Investors and analysts are now scrambling to understand the underlying reasons for this downturn.

The Impact of ETF Outflows on Ether Price Drop

One of the key factors contributing to the Ether price drop is the significant outflows from Ether ETFs since their launch. According to data from Farside Investors, the US Ether ETFs have recorded a cumulative net outflow of $420.5 million. This massive selling pressure has likely exacerbated the Ether price drop, as investors who bought into the ETFs have been offloading their holdings.

“While the launch of Ether ETFs was a milestone event, the resulting selling pressure has created a headwind for Ether’s price,” says Alex Thorn, Head of Research at Galaxy Digital. “Investors who expected a quick price surge were likely disappointed, leading to further outflows and downward pressure on the market.”

Rising Supply Adds To The Ether Price Drop

In addition to the ETF outflows, another significant factor contributing to the Ether price drop is the increase in Ether’s supply. Since the ETFs began trading, Ether’s supply has risen by 60,555 ETH, worth over $155 million at current prices, according to Ultrasound.money data. This increase in supply, coupled with the selling pressure from ETF outflows, has created a perfect storm for Ether’s price decline.

The supply growth rate currently stands at 0.61% per year, with a yearly issuance rate of 940,000 Ether and a burn rate of 203,000 Ether. The growing supply, without a corresponding increase in demand, has likely played a crucial role in the Ether price drop.

The Dencun Upgrade and Its Aftermath

The Dencun upgrade, Ethereum’s most significant update since the Merge, Dencun upgrade, went live on mainnet on March 13,. The upgrade was designed to enhance Ethereum’s scalability and reduce transaction fees for layer-2 networks. However, despite these improvements, Ether’s price has struggled since the upgrade.

Onchain analytics firm CryptoQuant highlighted this issue in an August 19 X post: “Despite the approval of Ethereum ETFs, the price of $ETH has been struggling since the Dencun upgrade. ETH supply has increased by more than 197,000 ETH, and its price has fallen by 35%.”

This ongoing Ether price drop since the Dencun upgrade raises questions about the long-term impact of the upgrade on Ethereum’s market dynamics. While the upgrade aimed to improve the network’s efficiency, the increase in supply and subsequent price decline suggest that other factors, such as investor sentiment and macroeconomic conditions, are playing a more significant role. 

Ether Price Drop: Could a Rebound Be on the Horizon?

Despite the recent Ether price drop, some analysts remain optimistic about Ethereum’s future. Popular crypto trader Ted shared his thoughts on Ether’s potential recovery in an August 11 X post: “The consolidation breakout will happen in November/December 2024, while the parabolic run will start in Q1 2025.”

Ted’s prediction is based on historical chart patterns, which suggest that Ether could be due for a breakout in the coming months. If this prediction holds true, the current Ether price drop could be seen as a temporary setback before a more significant rally.

The Ether price drop following the launch of the first US Ether ETFs has been a wake-up call for investors who expected an immediate price surge. The combination of significant ETF outflows, rising supply, and broader market dynamics has contributed to this unexpected decline. However, with analysts predicting a potential breakout in early 2025, the current Ether price drop may present a buying opportunity for long-term investors.

As the market continues to evolve, all eyes will be on Ethereum’s next moves, particularly in response to the ongoing developments in the ETF market and the broader cryptocurrency landscape. Whether Ether can recover from this downturn and resume its upward trajectory remains to be seen, but one thing is certain: the journey will be closely watched by investors worldwide. Get more from The Bit Gazette