Ethereum ETF Records First-Ever Net Inflows

The Ethereum ETF market is witnessing a shift as outflows slow down, resulting in a modest net inflow for the first time since the inception of these products. This change reflects a growing interest in Ethereum’s ETF offerings, positioning the market for potential growth and influence in the crypto investment landscape.

Net inflows mark a positive turn

Ethereum ETFs have recorded net inflows for the first time since their launch. Although individual fund providers exhibited strong inflows, the overall market gained attention as a driving force for ETH token demand. Grayscale’s ETHE fund was the primary source of selling pressure, transitioning from an OTC-traded product to an ETF. 

The recent net inflow occurred as ETHE shares experienced a trend reversal, with reduced daily selling. This gradual decline in ETHE selling has been a positive sign since the ETF’s launch, hinting at a possible change in market dynamics.

Despite the encouraging inflows, the immediate impact on Ethereum’s price has been minimal. Following the latest inflows, Ethereum’s price dropped to $3,188.63, mirroring the broader market correction. 

This pressure intensified after the US Federal Reserve maintained the interest rate between 5.25% and 5.5%, disappointing expectations of a 0.25% reduction. Additionally, ETHE’s share price fell to $27.60, equivalent to $2,760 per ETH, highlighting the ongoing reluctance among mainstream investors to purchase shares at par with ETH markets.

Grayscale’s impact on the market

Grayscale’s role in the Ethereum ETF market remains significant as the firm continues to utilise the ETF launch to divest its substantial ETH holdings. The Grayscale balance has decreased to 2.5 million tokens, following the aggressive selling of over 3 million tokens in the past month. 

Despite this selling, Ethereum’s markets have shown resilience, absorbing the pressure with a less severe price decline than anticipated. Ethereum remains in a consolidation phase, and while inflows to the fund have not yet sparked enthusiasm, the market is closely monitoring Grayscale’s actions. 

The pattern of Grayscale’s selling also leads to a redistribution of influence among ETF issuers. BlackRock has emerged as a prominent player, with its fund absorbing a significant portion of Grayscale’s sales by adding $119 million in inflows in a single day. Currently, ETHE accounts for 76% of all Ethereum-based shares, BlackRock’s presence has expanded to 6.9%, and Bitwise’s share has grown to over 3%.

Prospects for Ethereum’s price movement

The influence of ETF buying could be pivotal in determining whether Ethereum has completed its consolidation phase. Analysts speculate that Ethereum may aim to revisit the $4,000 mark and potentially rally to between $8,000 and $10,000 by year’s end, driven by ETF purchasing. 

However, the current week has seen a downward trend in Ethereum’s price, which may lead to the liquidation of long positions. Long liquidations have dominated, reaching approximately five times the value of short liquidations. Ethereum also maintains a layer of liquidity on short positions above $3,400, which could trigger a short-term rally. 

Over the years, Ethereum has operated as a range-bound utility token, failing to achieve its previous all-time highs since 2021. During this period, Ethereum’s holding profile has evolved significantly, with reduced fee demand due to network updates and increased participation in passive income contracts, notably the Beacon chain staking contract.

Apart from Grayscale, Ethereum faces no primary selling sources, as seized ETH is held in smaller wallets, and large holders like ICO funds and hackers often recycle ETH within the ecosystem. In the past month, more than 80,000 ETH have left exchanges as whales position themselves for a potential price breakout. 

Over the last two years, over 15 million ETH have been moved through liquid staking, and 48.8 million ETH are locked in the Beacon contract. These token lockups exert a more significant influence than ETFs, although ETF interest serves as a sentiment gauge and indicates potential mainstream allocation prospects.

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