Security Token Exchange

As Bitcoin surged past $28,000 on Monday to trade above its 200-day moving average, Ether also rallied to $1,740. However, since then, the prices have fallen as traders took profit, and the US 10-year yield spurged to its highest level in over 16 years. 

At the time of writing, the second-largest cryptocurrency with a market cap of $198.4 billion has been trading at $1,649 while managing $12.45 bln in volume, which is up 9% from a day ago. Despite this, ETH’s price has faced challenges recently.

In the past 24 hours, ETH’s price has dropped by 4.7%. Not only against USD, but ETH’s price is also down against BTC, currently sitting at 0.0601, down from its Nov. 2021 high of 0.081246. ETHBTC has actually been on a downtrend for the past year, when it was at 0.077 in late Oct. 2022.

However, ETH’s price in USD is still up about 38% in 2023 so far, with the crypto asset gaining 27.6% over the past year. That said, it has lost over 66% of its value since hitting an all-time high (ATH) at $4,880 in Nov. 2021. 

As the bullish sentiment spreads across the broader market and the crypto fear and greed index turns neutral with a reading of 50/100, risk-tolerant investors are exiting their ETH positions. They are moving their coins into exchange-hosted wallets, potentially to sell. As per Cryptoquant data, the total ETH deposited in exchange wallets has risen to 14.70 million ETH, an increase from 14.57 million coins on Sept. 24.

If we take a look at Global In/Out of Money Around Price (GIOM) data, 3.3 million addresses bought 3.37 million Ethereum coins at an average price of $1,802, presenting a significant sell-wall at this level. Technically, ETH has an important resistance present at the $1,725 (Fib 0.382) level. 

On the other hand, 7.26 million addresses had bought 14.92 million ETH coins at the minimum price of $1,535. So, if ETH moves downwards and loses its support level at $1,650, it can drop below the first $1,550 and then $1,500.

Moreover, last week, around 2,500 ETH worth just over $4 million, tied to last year’s exploit of the bankrupt crypto exchange FTX, started moving for the first time in nearly a year. Of these, 700 ETH were transferred using the Thorchain Router, and about 1,200 were moved through the privacy wallet Railgun, while another 550 were sitting in an intermediate wallet. Also, there is still 12,500 ETH in the original wallet.

Click here to learn all about investing in Ethereum. 

A Slew of Ether Futures ETF Enters the Market

The latest price action came after Ether futures exchange-traded funds (ETFs) made their way into the US market for the very first time. In a recent note, QCP Capital said, “a futures-only ETF is arguably detrimental to spot price – as it potentially directs demand away from the spot market into a synthetic market.”

However, the much-hyped Ether Futures ETFs failed to capture the interest of investors.

On Monday, investment firms VanEck, Bitwise, Valkyrie, ProShares, and Kelly collectively debuted a total of nine ETFs on the Chicago Board Options Exchange (CBOE). Of these funds, only five hold exclusively Ether futures, while the others track a mixture of Bitcoin and Ether futures contracts.

VanEck’s Ethereum Strategy ETF (EFUT) kicked off trading yesterday, while Valkyrie debuted its Bitcoin and Ether Strategy ETF (BTF). Bitwise, too, was in the fray as it rolled out its Bitwise Ethereum Strategy ETF (AETH) and Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP). Meanwhile, Proshares launched three funds: the Bitcoin and Ether Strategy ETF (BETH), the Bitcoin and Ether Equal Strategy ETF (BETE), and the Ether Strategy Fund (EETH). Brazilian fund manager Hashdex also launched its Ether Strategy ETF (EX).

However, despite the excitement surrounding these launches, the nine funds got off to a slow start, with low volumes reported on their first day of trading. As of 11:25 am ET, they had traded less than $2 million in total, according to Bloomberg Intelligence analyst Eric Bulchunas, who described the volume as “meh” on Twitter.

Among all the Ether futures ETFs, Valkyrie’s BTF was leading the race with around $787,000 worth of shares trading hands by that time.

While Ether futures ETF only started trading now, the first Bitcoin futures ETF started trading on the New York Stock Exchange back in 2021. Compared to Ether’s performance, at the time, the ProShares Bitcoin Strategy ETF (BITO) traded nearly $1 billion in shares on its debut day and almost broke records. However, it’s worth noting that BITO’s launch was during the height of the bull run when Bitcoin was trading around $65,000, a lot higher than it is currently trading at.

Even then, Balchunas noted that compared to a regular traditional finance (TradFi) ETF launch, the volume witnessed was actually “quite a lot.” He further explained that the SEC scheduled the launch of all the products on the same day to prevent any one fund from gaining market domination.

Amidst this, Volatility Shares, a financial firm offering a range of ETF products, canceled its plans to list Eth futures ETFs, saying that it “didn’t see an opportunity” at this time with further plans to be decided.

All of these crypto funds track the future price of the digital rather than the asset itself. Investors are currently awaiting a Spot crypto ETF, which will allow them to gain exposure to the cryptocurrency itself without needing to hold the actual asset.

In the past few months, several high-profile TradFi players, including BlackRock, have filed for a Bitcoin Spot ETF on which the SEC has yet to make a decision. Market participants are hopeful that we can get approval next year, but that remains to be seen.

Recently, four US lawmakers called on the US Securities and Exchange Commission (SEC) to immediately approve spot Bitcoin ETF after a federal judge last month undermined the agency’s decision to reject converting the Grayscale Bitcoin Trust (GBTC) into an ETF.

Click here to learn all about buying Ethereum (ETH). 

Grayscale Applied for a Spot Ether ETF 

As a series of Ether futures ETFs made their way into the US market, asset manager Grayscale now intends to convert its Ethereum Trust into an ETF.  

NYSE Arca filed a 19b-4 with the SEC to convert the Grayscale Ethereum Trust (ETHE) into a spot Ethereum ETF. “As we file to convert ETHE to an ETF, the natural next step in the product’s evolution, we recognize this as an important moment to bring Ethereum even further into the US regulatory perimeter,” said Grayscale CEO Michael Sonnenshein in a statement. 

As per the press release, ETHE’s conversion into a spot ETF has always been the “final stage” of the Trust’s intended lifecycle ever since its launch in 2019. Much like Grayscale’s Bitcoin fund, the company’s Ethereum trust is the largest Ethereum investment vehicle worldwide. After all, ETHE currently comprises 2.5% of all circulating ETH.

As of writing, ETHE shares are trading at a 30% discount to the underlying ether held by the fund. Following the announcement, shares for ETHE spiked over 6%. With ETH currently trading at $1,665, the total value of the fund’s ETH holdings amounts to about $5 billion, while its shares total to just $3.6 billion.

This is because, currently, ETHE shares are not redeemable for the underlying ETH, which would be changed under the ETF structure.

Last month, Grayscale also filed for a futures Ethereum ETF, which is backed by cash-settled futures contracts rather than actual ETH. A futures contract is an agreement to buy or sell an asset, here ETH, at a later date at a predetermined price.

Grayscale’s latest application to convert ETHE into an ETF comes while the company battles to convert the Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF. Back in August, the company did secure a major court victory over the SEC as the court found that the securities regulator was being “arbitrary and capricious” toward Grayscale in denying its spot Bitcoin ETF application while permitting alternative futures Bitcoin ETFs. Since then, GBTC’s share discount has narrowed from 25% to 20%.

Tokenization & Staking on Ethereum Gains Traction

Amidst all the heightened activity around Ethereum ETF, the tokenization trend on Ethereum continues to gather steam. This week, UBS Asset Management launched its inaugural live pilot of a tokenized Variable Capital Company (VCC) fund, representing a legal entity for investment funds in Singapore introduced in January 2020 to enhance the city-state’s position as a hub for fund management activities.

The asset management division of Switzerland’s largest financial holding will leverage its in-house tokenization service called UBS Tokenize to initiate a controlled pilot of a tokenized money market fund on Ethereum and let the firm facilitate fund subscriptions and redemptions.

The pilot is part of the broader Monetary Authority of Singapore (MAS)-led VCC umbrella initiative called Project Guardian, which aims to tokenize various real-world assets. 

“This is a key milestone in understanding the tokenization of funds, building on UBS’s expertise in tokenizing bonds and structured products,” said Thomas Kaegi, Head of UBS Asset Management, Singapore and Southeast Asia.

In this initiative, UBS will collaborate with TradFi institutions and fintech providers to gain insights into enhancing market liquidity and providing better market access for their clients.

The UBS Tokenize platform was recently also used to issue digital structured notes by Bank of China Investment (BOCI), amounting to CNH 200 million ($27.3 million), on the Ethereum blockchain.

Besides tokenization, staking is also gaining traction on Ethereum, with about 30.5 million coins staked on the network. Back in April, the Shapella upgrade went live, which finally allowed the withdrawals of ETH, making investors more confident with locking up their coins in Ethereum’s deposit contract.

Staking has made Ethereum one of the hottest money-making opportunities. While the market is going through a crypto winter, staking has created the ability for participants to earn rewards on their holdings and weather the storm until asset prices start rallying.

However, Ethereum co-founder Vitalik Buterin recently expressed worries regarding DAOs like Lido exerting a monopoly over the selection of node operators in liquidity staking pools. “With the DAO approach, if a single such staking token dominates, that leads to a single, potentially attackable governance gadget controlling a very large portion of all Ethereum validators,” Buterin said in a Sept. 30 blog post.

To address this issue, Buterin encouraged ecosystem participants to utilize a variety of liquid staking providers. 

Ethereum Protocol Improvements

While all this development is taking place, developers continue to work on making Ethereum more efficient. Last week, Ethereum developers were successful in their second attempt to launch the new Holesky test network, which is to help developers test some ambitious scaling plans for the main blockchain. The new testnet will also allow twice as many validators to join the network compared to the mainnet.

Holesky is of significance because it will be important for Ethereum’s upcoming hard fork, Dencun, where proto-danksharding is supposed to go live. As part of EIP-4844, Proto-danksharding is aimed at reducing the cost of rollups, which batch transactions and data off-chain and submit computational proof to the main Ethereum blockchain. The expected launch date for proto-danksharding is yet to be decided, though development and testing are ongoing.

Buterin recently also commented on Ethereum’s philosophy, which started off as minimalistic but has since changed. Discussing the possibility of integrating more advanced features directly into the Ethereum protocol, Buterin said it is not limited to Layer 2 structures but also includes other functionalities such as privacy, usernames, advanced cryptography, account safety, censorship resistance, frontrunning protection, and digital asset exchange, among others.

He did caution that too much enshrining, which is integrating advanced features and functionalities directly into the Ethereum protocol, can also bring problems in the long run in terms of overcomplications and including features only popular in the short term.

Concluding Thoughts

ETH is currently in the red, but if the bulls persist, we could see it continue first toward $1,800 and then $2,000. Not to mention, this price action is happening as we enter October, historically one of its strongest months. However, the macro environment remains the major driving force, and with investors worried that the Federal Reserve would keep interest rates high for longer, which are at their highest level since 2001, to tame inflation, risk-averseness will continue to rule the markets.