Members of the Ether (ETH) community have now withdrawn over 800,000 ETH, worth about $3 billion, since the United States Securities and Exchange Commission (SEC) approved spot Ethereum exchange-traded funds (ETF). A Quicktake publication from on-chain and market analytics tools service CryptoQuant offers explanations for the ETH exodus.
ETH, the world’s second-largest cryptocurrency by market cap, has enjoyed a more than 23% increase over the last month and more than 100% in the past year, according to MarketWatch data. Data also shows that ETH has returned over 64% to holders since the year began. In addition, the ETH blockchain functions as the base framework of several active crypto projects, including much of the decentralized finance (DeFi) sector. Its functionality also extends to the online gambling industry, where players can find an ETH casino to place bets, make deposits, and withdraw earnings via ETH.
Despite these successes, the massive outflow has given some members of the crypto community cause for worry. Confirming that his explanations are assumptions, CryptoQuant analyst Burakkesmeci states that the departure might be caused by whales or traders who believe that the SEC’s approval of an ETH spot ETF will affect the asset’s price. Entities in this category hope a price spike will bring them heavy returns. The second explanation for the $3 billion exit is institutions looking to meet a high ETH demand from their investors and clients – a demand they expect will spike following the SEC’s approval.
Despite the assumptions, Burakkesmeci believes the situation will affect ETH. The analyst wrote:
“The above answers are each an assumption, but we can expect that the withdrawal of more than 800,000 Ethereum from exchanges in 8 days will have a positive impact on the price in the medium term.”
SEC Greenlights Ether Exchange-Traded Funds (ETFs)
In a filing on May 23, the SEC approved 19b-4 submissions from several would-be issuers, greenlighting spot ETH ETFs. The approval covers the Fidelity Ethereum Fund, the Invesco Galaxy Ethereum ETF, the Franklin Ethereum ETF, the Bitwise Ethereum ETF, the ARK 21Shares Ethereum ETF, the VanEck Ethereum Trust, the iShares Ethereum Trust, and the Grayscale Ethereum Trust.
News of the approval was met with market enthusiasm, especially because many were unsure about the SEC’s stance on spot ETH ETFs. In fact, a few stakeholders suggested that the SEC was unlikely to approve the products. Apart from SEC Chair Gary Gensler’s known skepticism of the cryptocurrency industry, there were reports that meetings between the SEC and prospective issuers did not contain robust discussions. This situation was very different from the deliberations with then-prospective spot Bitcoin (BTC) ETF issuers.
In addition to the above, Gensler’s statement following the approval of Bitcoin products suggested the Commission was only open to BTC ETFs. Published on January 10, the statement specified that the approval at the time was “cabined to ETPs (exchange-traded products) holding one non-security commodity, Bitcoin.” He added that no one should view the approval as the SEC’s willingness to approve ETFs for other digital assets. Furthermore, Gensler wrote that the approval signals nothing about the agency’s position on the status of other crypto assets.
Possible Political Pressure on the SEC
Some parts of the sector believe that the SEC’s decision to greenlight spot ETH ETFs stemmed from political pressure. According to Ethereum co-founder and Consensys chief executive officer (CEO) Joseph Lubin, the SEC is under some pressure to be more neutral towards crypto. Lubin believes this is tied to the forthcoming presidential elections, adding that a neutral or warm response towards crypto could make the SEC seem like a “thoughtful regulator.”
However, analysts from research and brokerage firm Bernstein believe the approval was not politically motivated. According to analysts Gautam Chhugani and Mahika Sapra, President Joe Biden’s recent decision to veto the SEC’s Staff Accounting Bulletin (SAB) No. 121 repeal bill is proof.
The analysts believe that the SEC had little choice because the already-approved spot Bitcoin ETFs and the ETH ETFs had similar regulatory fine print. They stated that the same correlation with spot and futures, especially since futures products were already live on the Chicago Mercantile Exchange, implied that ETH is a commodity, leading to the approval.
Chhugani and Sapra noted that the ETF applicants they spoke to were surprised at the approval. They wrote:
“No one expected an Ethereum ETF approval by the SEC. SEC staff’s radio silence in the run-up to the approval date, was interpreted as likely denial.”
Interestingly, Lubin rightfully predicted that the SEC would approve 19b-4 applications, greenlighting the rule change to allow spot ETH ETFs. However, he believes the S-1 approvals, which would enable actual ETF trading, will take some time. While ETF Prime podcast host Nate Geraci set a maximum of 3 months for S-1 approval, Bloomberg’s Senior ETF analyst Eric Balchunas believes it would happen around July 4. Regardless, the SEC’s approval sets the regulatory tone for ETH, which could lead to the assets seeing more acceptance across all sectors, including everything from online crypto gambling to DeFi.
Conclusion: ETH Price Action
There have been several predictions about the price of ETH, especially since the SEC’s approval. According to a popular analyst on X, simply known as Ali, ETH has the potential for a massive jump if it breaks away from the current zone of between $3,700 and $3,820. Ali believes the next resistance levels after this range are $3,940, $4,050, and $4,170. He added that breaking past this moves ETH toward $5,000.
However, Ali’s analysis also allows for the possibility that ETH does not maintain the $3,700-$3,820 range. He states that failure at this point could drop ETH to the lower key support area between $3,462 and $3,580. Regardless, Ali warns traders to be cautious, discouraging extreme bullishness about the effect of the SEC’s approval of spot ETH ETFs.