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This closely traded Ethereum ETF is seeing strong investor attention today — for good reason.
As far as large-cap cryptocurrencies are concerned, Ethereum (ETH 3.81%) remains among the most closely watched tokens out there. Indeed, there’s good reason for this — Ethereum is the foundation upon which most of the utility-generating world of decentralized applications is built. Thus, there are plenty of crypto investors who continue to buy the dip on the world’s second-largest cryptocurrency when they see volatility creep into the market.
However, crypto investors willing to navigate the blockchain, set up a wallet, and trade on a centralized or decentralized exchange are relatively limited. The recent approval of spot ETFs by the Securities and Exchange Commission (SEC) has allowed a wave of institutional and conventional investors to step into this asset via funds like the iShares Ethereum Trust ETF (ETHA 5.18%).
As of 1:45 p.m. ET Monday, shares of this particular ETF have surged 4.8% from yesterday’s close, and have carried forward the strong momentum seen throughout last week. On a week-to-date basis, this ETF is now up more than 17% at the time of writing.
Open interest continues to climb
As is the case with many top cryptocurrencies, a lack of fundamentals (relative to stocks and other income-producing investments) can be frustrating, and lead many investors to look elsewhere for growth. That said, Ethereum’s underlying utility as the base layer of choice in the blockchain world does provide for some key fundamentals (active wallets, transactions, etc.), which can be tracked to see how this network is performing overall. These metrics have been trending positive over the past week as retail investors continue to drive most of the on-chain activity for Ethereum, but that’s only part of the story.
One of the more important metrics I follow when it comes to highly traded digital assets like Ethereum is open interest. Many investors may already be well aware that derivatives trading makes up a significant amount of the overall trading volume for tokens like Ethereum. Thus, when open interest for futures contracts hits a 20-month high, as it did over the weekend, many traders and investors take notice.
This surge in futures interest suggests that investors are looking to make bets on Ethereum with leverage, implying that many see larger-than-expected moves on the horizon, at least relative to market expectations. With certain macro catalysts underpinning such expectations (such as the supersized 50-basis-point interest rate cut delivered by the Federal Reserve last week), it’s entirely possible that these traders are correct in their views.
Can this Ethereum ETF continue to outperform?
We’ll have to see if the sort of open interest Ethereum has witnessed of late translates into increased volatility for this token (with pricing pressure to the upside). For now, that appears to be the case, if not for the fact that surging derivatives bets on any asset class can lead to wider market swings over shorter time frames. In a sense, we could be due for a self-fulfilling prophecy in that regard.
My near-term expectation for this ETF is that risk is likely tilted to the upside, though this potential upside will come with higher volatility (and therefore higher risk). Thus, as is always the case in the crypto sector, it’s buyer beware for now.