ETH ETFs Launch, Traders Sell the News Again - Cryptoasset Weekly Update (July 27 2024)

BTC/USD & ETH/USD Key Points

• Surprising no experienced crypto market participant, the launch of cash Ethereum ETFs led to a classic “sell the news” reaction in ETH/USD’s price.
• One way or another, the odds seem to be tilting toward a more tolerant regulatory regime starting in January.
• The Fed is seen cutting interest rates 70bps by the end of the year, the most dovish expectations since early April.

Cryptoasset Market News

Stop me if you’ve heard this one before, but we saw another successful launch of a new major crypto-related financial product last week, and the cryptoasset in question sold off. In a tale as old as time, the launch of cash Ethereum ETFs led to a classic “sell the news” reaction in ETH/USD’s price (more on that below), despite a smooth start and solid volume in the product itself.

Separately, politics remain a key focus for the crypto markets with US Presidential hopefuls Donald Trump and Robert F. Kennedy Jr. poised to speak at the Bitcoin conference in Nashville on Saturday, after this article goes to press. Rumors are swirling about the announcement of a potential “Strategic Bitcoin Reserve,” a development that would be as bullish as it is unlikely in our view.

Presumptive Democratic nominee Kamala Harris was briefly floated as a potential speaker at the event, but she apparently turned down the invite midweek. However, according to Mark Cuban, she did reach out to him to get some perspective on the asset class. In a summary of the remarks, Cuban noted, “The feedback I’m getting, but certainly not confirmed by the VP, is that she will be far more open to business, [artificial intelligence], crypto and government as a service. Changing the policies changes the message and lets everyone know she is in charge and open, literally, for business.” One way or another, the odds seem to be tilting toward a more tolerant regulatory regime starting in January.

Macroeconomic Backdrop

From a macroeconomic perspective, it was a quiet start to the week, with the major economic data back weighted from Wednesday onward. The Bank of Canada cut interest rates as expected on Wednesday, underscoring the broad trend toward more dovish central banks. Then, Thursday brought a better-than-expected 2.8% annualized reading in Q2 GDP out of the US…along with the worst Durable Goods Orders report since COVID, which took much of the luster of the solid GDP reading. Friday’s slightly hotter-than-expected US Core PCE print was mostly telegraphed from the aforementioned GDP report, minimizing the hawkish implications.

Overall, traders are now pricing in 70bps of interest rate cuts from the Federal Reserve by the end of the year, or nearly 3 full interest rate cuts. This is the most dovish expectations have been for the US central bank since April, a development that would ease monetary policy and potentially serve as a bullish catalyst for cryptoassets more broadly.

Source: CME FedWatch

Sentiment and Flows

The sentiment gauge we watch most closely, the “Crypto Fear and Greed Index” ticked up further into “Greed” territory last week, though it remains far from the extremes that tend to mark major tops. Overall, it remains in-line with the average range seen over the last year, failing to provide a major contrarian reversal signal.

Source: Alternative.me

Another way of gauging sentiment, flows into exchange-based cryptoasset investment vehicles, remained generally positive last week, though they moderated from the blistering rate of inflows we had seen the previous week. As of writing before the release of Friday’s data, Bitcoin ETFs have seen $483.5M in inflows, roughly in-line with the 4-day average of $520M that they’ve seen since the ETFs launched in January. Over the long-term, these inflows from “tradfi” investors provide incremental demand for Bitcoin and could help support the price.

Source: Farside Investors

Ether ETFs have seen net outflows in the first few days of trading as traders try to “speedrun” the exodus from the higher-fee legacy Grayscale product (ETHE). These outflows, which have already totaled over 12% of the fund in just 3 days, could well continue for the next several weeks until it reaches a more appropriate level of assets given its fee structure.

Bitcoin Technical Analysis: BTC/USD Daily Chart

Source: StoneX, TradingView

In an odd circumstance, Bitcoin is trading almost exactly unchanged from where it was when last we published this weekly report. As we noted last week, “the cryptocurrency remains below previous-support-turned-resistance at $60K and its 200-day MA, so bulls will want to see if it can recapture those thresholds before growing more constructive on the longer-term outlook for Bitcoin.” Perhaps after a week of consolidation, the pair is less overbought from a short-term perspective, potentially setting the stage for a near-term move higher.

Ethereum Technical Analysis: ETH/USD Daily Chart

Source: StoneX, TradingView

Unlike its big brother, Ether saw a more substantial pullback last week, with traders fulfilling the recurring pattern of “selling the news” around launches of new financial products for cryptoassets. ETH/USD is currently trading almost exactly on its 200-day MA, with a medium-term range established between $2875 support and resistance at $4000. The near-term outlook remains neutral until that range resolves one-way or another.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos and be sure to follow Matt on Twitter: @MWellerFX