Traders short Ethereum like the Grayscale Pulse Futures ETF scheme
Just weeks before the US Securities and Exchange Commission (SEC) is set to issue a ruling, leading cryptocurrency asset manager Greyscale has abruptly dropped its application for an Ethereum futures exchange-traded fund (ETF).
This move has many in the industry speculating about the future of Ethereum-based investment products.
TLDR
Grayscale has dropped its application for an Ethereum futures ETF, surprising many in the industry. The termination comes just weeks before the SEC's deadline to determine Ethereum ETF applications. Analysts speculate that Greyscale's move could be a strategic shift away from taking legal action against the SEC. Traders are shorting Ethereum in anticipation of further price declines in an out-of-control scenario. The crypto community and analysts are doubting the chances of an Ethereum ETF being approved by the SEC.
Greyscale's decision to pull the Ethereum Futures ETF app surprised many, especially given the timing.
The SEC was scheduled to make a final decision on the application on May 30, and some analysts had previously speculated that Grayscale would use the futures ETF as a strategic “Trojan horse” to pressure the SEC to approve the Ethereum ETF instead.
Bloomberg ETF analyst James Seifert expressed confusion about Grayscale's move to withdraw the application now, especially as the SEC is set to make decisions on Ethereum ETF applications in several areas in the coming weeks.
Update this is interesting. @Grayscale just withdrew their 19b-4 filing for the #Ethereum Futures ETF. This in my view was basically a trojan horse file, designed to create the same conditions that allowed Grayscale to win the $GBTC lawsuit (preventing the future) pic.twitter.com/Kihj2dlQx1
— James Seyff (@JSeyff) May 7, 2024
Regulatory uncertainty and market sentiment
The discontinuation of Greyscale's Ethereum Futures ETF application comes amid growing uncertainty over Ethereum's regulatory status.
SEC Chairman Gary Gensler's recent comments suggest that the agency is still weighing its decision on the Ethereum ETF, and there is no clear indication of which way it will support.
This regulatory uncertainty appears to be affecting market sentiment as an increasing number of traders take short positions on Ethereum.
According to Liquid Data, a return of just 3% in Ether's price would wipe out $345 million in short positions, while a 3% drop would wipe out just $237 million in long positions.
The crypto community also seems to be losing faith in the adoption of Ethereum ETFs. A poll conducted by crypto prediction platform Polymarket showed that 92% of participants believe that the SEC will ban Ethereum ETFs next month.
In addition to regulatory challenges, there are concerns about the general adoption of Ethereum and a lack of speculative interest from short-term holders (STH).
According to James Check, an analyst on the chain, the use of Ethereum is currently so low that the burning mechanism does not track issuing validators.
Ethereum usage is currently so low that the burning mechanism is incompatible with issuing validators.
Gas prices are below 4gwei, which you have to go back to early 2020, and pre ‘defi summer', to get a reasonable period of low demand.
‘but mah L2 dimension' -> the…
— _Checkmatey ??????⚡☢️????️ (@_Checkmatey_) May 8, 2024
Glassnode, a crypto analytics company, attributed the low performance of Ethereum in this cycle compared to Bitcoin to the “measured delay in speculative demand” from the STH group.
Despite these concerns, some traders remain optimistic about Ethereum's long-term prospects, with predictions of a possible price rally by the end of the year.
However, the future remains uncertain as the crypto community awaits SEC decisions on spot Ethereum ETFs and further developments in the regulatory landscape.
