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- Ethereum ETFs may be underperforming due to historical market decline in Q3.
- Rising Ethereum exchange reserve could cause selling pressure.
- Ethereum’s open interest needs to grow to fuel a potential rally.
Ethereum (ETH) is up 1% on Tuesday as ETH exchange-traded funds (ETF) continue underperforming with another day of outflows. The weak flows in ETH ETFs may be due to their historically weak Q3 performance. Meanwhile, the ETH exchange reserve has also been rising following its slow price growth.
Daily digest market movers: Why Ethereum ETFs are underperforming, rising exchange reserve
Ethereum ETFs extended their streak of negative flows to five consecutive days after posting $5.2 million in outflows on Monday.
The flows were dominated by $22.6 million outflows from Grayscale’s ETHE, taking its total asset loss since ETH ETFs went live to $2.69 billion. While other issuers saw zero flows, Fidelity’s FETH and Grayscale Mini Ethereum Trust managed inflows of $7.6 million and $8 million, respectively.
The weak performance of spot ETH ETFs has led to concern among investors who had anticipated an Ethereum outperformance similar to that of Bitcoin weeks after spot BTC ETFs launched in January. Notably, ETH ETFs have only recorded one day of inflows in the past three weeks of trading and a cumulative outflow of $573 million since launch.
A possible reason for the underperformance could be the historical decline across risk assets in Q3. Hence, most analysts have suggested that Q3 needs to pass before giving an accurate analysis of ETH ETF performance.
Meanwhile, Ethereum’s exchange reserve saw a notable uptick, rising by over 94K ETH worth about $220 million in the past 24 hours. An increase in a crypto asset’s exchange reserve indicates higher selling pressure and could lead to price declines. As a result, ETH could face selling pressure in the next few hours.
ETH Exchange Reserve
ETH technical analysis: Ethereum’s open interest needs to rise to fuel quest for rally
Ethereum is trading around $2,360 on Tuesday, up 1% on the day. In the past 24 hours, ETH has seen $22.55 million in liquidations, with long and short liquidations accounting for $4.69 million and $17.86 million, respectively.
Ethereum succumbed to the selling pressure around the $3,400 resistance as it declined immediately after approaching the level. ETH’s price is also restricted by a descending trendline extending from May to September. ETH needs to overcome the $3,400 rectangle’s resistance and the descending trendline to stage a rally toward the $2,817 resistance level. A successful move above this level could see ETH rally toward the $3,230 price level.
ETH/USDT 4-hour chart
A daily candlestick close below $2,100 could send ETH crashing toward the $1,544 support level.
The Relative Strength Index (RSI) is above its midline at 53, indicating bullish momentum. The Stochastic Oscillator has crossed into the oversold region, indicating a potential brief price correction.
Meanwhile, Ethereum’s futures open interest (OI) also needs to rise to provide support for potential price growth.
Open interest is the total number of unsettled long and short positions in a derivatives market.
ETH’s OI has declined by over 38% from an all-time high of $17.09 billion on May 28 to $10.51 billion on Tuesday. In the same period, ETH declined by over 39%. Notably, its OI peaked following news of the Securities & Exchange Commission’s (SEC) U-turn to approve ETH ETFs. Similar bullish news may be needed to incentivize long traders to come into the market again.
ETH Open Interest
In the short term, ETH could decline to $2,318 to liquidate positions worth $28.33 million.
Ethereum development FAQs
After the Merge, the Ethereum community is looking at the Sharding upgrade next, which has been slated for sometime later in the year. The development can be summarized in four words, “scalability through more efficient data storage.” The software update will increase the capacity of the blockchain, widening the amount of data that can be stored or accessed. At the same time, all services running atop the Ethereum blockchain will enjoy significantly reduced transaction fees.
A fork is the splitting of a blockchain after developers agree and proceed to implement upgrades. The decision comes after these developers reach a consensus for a software upgrade. The ensuing part will see one part continue with the status as is, while the other one will proceed with new features combined with the former ones. A hard fork basically entails permanent divergence of a new side chain from the original one, while a soft fork is doing the same, only difference being that it is temporary.
EIP-4844 is an improvement proposal for the Ethereum network. The upgrade promises reduced gas fees, which is a valuable offering considering the high transaction cost that continues to daunt crypto players. It has been a long-standing concern for the Ethereum network. The proposal is also referred to as “proto-Danksharding,” with an unmatched ability to increase the speed of transactions on the Ethereum blockchain. At the same time, it helps to reduce the transaction cost as everything becomes decentralized.
Gas token is a new, innovative Ethereum contract where users can tokenize gas on the Ethereum network. This means they can store gas when it is cheap and start to deploy the gas once the market has shifted to the north. The use of Gas token helps to subsidize high gas prices on transactions, meaning investors can do everything from arbitraging decentralized exchanges to buying into initial coin offerings (ICOs) early.