Ethereum ETF Joy? ETH futures tell a different story

On May 23, the US Securities and Exchange Commission (SEC) greenlit Ethereum exchange-traded funds (ETFs), but the actual trading of these instruments in the US markets will take longer because the regulator has not yet approved each of the eight funds' individual S-1 documents. Given the uncertainty, the price of Ether (ETH) has struggled to break above the $3,900 resistance, and the answer may lie in Ether futures markets.

Uncertainty regarding Ethereum Spot ETF launch date and potential outflows

Part of the unease among ether investors, even those who believe the effective spot ETF launch in the US is imminent, stems from the switch from the Grayscale Ethereum Trust (ETHE) to a spot instrument. If the fund manager decides to keep the $11 billion fund's payout at a much higher level than its incumbents, it's likely that the result will reflect Greyscale's GBTC inflows, thereby offsetting inflows from competitors including BlackRock, Fidelity, VanEck and ARK 21Shares.

Some analysts believe that the SEC's decision to approve Ethereum was heavily influenced by last-minute pressure from Democrats to win over swing voters in the United States presidential election this November. However, analysts say the SEC was aware that the Ethereum instrument shares the same regulatory configuration as the spot Bitcoin ETFs, so according to Bernstein analysts, “the SEC took a more hands-on approach and avoided a legal battle.

Traders are debating whether bullish bets are being made through the ETH derivatives markets, or if the price of Ether is being artificially suppressed due to the Ether ETF's longer-than-expected exit. This uncertainty comes from the mixed signals in the crypto market, especially US President Joe Biden's recent actions against the Congressional resolution aimed at repealing the SEC's SAB 121 directive, which has made the regulatory environment of cryptocurrencies a concern.

It is impossible to predict how long it will take the SEC to approve the necessary S-1 filings for each Ethereum spot ETF, so attention should be shifted to trading metrics to understand if traders are leaning towards depression after several failed attempts to maintain a price above $3,900. Perpetual contracts, also known as reverse swaps, include an embedded price that is recalculated every eight hours. In short, a positive rate indicates a preference for higher utility to be used in the long run (buyers).

With the exception of a short increase of about 0.03% at 8-hours on May 21st, which equates to 0.6% for the week, the funding rate for ETH was negligible, meaning there was a balanced interest between longs and shorts using perpetual contracts.

Monthly ETH futures reflect the hopes of investors that they are gradually disappearing

ETH monthly futures must track the annual premium (base rate) to avoid outliers specific to perpetual contracts. These contracts rarely track the price of Ether, as their longer settlement times cause sellers to demand a 5% to 10% premium. But in good times, this difference can easily reach 20% because buyers are willing to pay a higher fee.

Ether's monthly futures premium rose 15% on May 21 following ETH's price rally to $3,800. However, some optimism faded on June 3 when the indicator returned to 13%, which is still slightly above the neutral threshold, but not a sign of short-term bullishness.

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This information does not mean that investors are unsure of where the Ethereum ETF will launch given the strict regulations around the world. For example, Hong Kong blocked unauthorized money transfers in the region, Paraguay seized unregistered crypto-mining equipment, and two US senators said Iran was using digital assets to bypass sanctions, including funding terrorist organizations.

For now, ETH derivatives reflect low confidence in strong US spot ETF net income regardless of the reason for the delay in regulatory S-1 approval or fears of an exit from Greyscale's ETHE instrument. Therefore, the chances for a rally above $4,000 in the near term are very slim as is the ETH futures price.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.