Today, Ethereum recorded gains of about 1% this morning, holding on to the highest level of $3,500, within relatively calm trading today and yesterday, after the violent correction that cryptocurrencies were subjected to earlier.
The correction that cryptocurrencies experienced this week, which was primarily driven by the Bitcoin correction with the acceleration of outflows from GBTC, coincided with the return of regulatory concerns to the fore, this time with the threat to the second largest cryptocurrency, Ethereum.
We are seeing ongoing talk in the news about a potential SEC investigation targeting the Ethereum network and the development company behind it, the Ethereum Foundation. Going into Friday, crypto analysts were trying to guess what the US regulator is up to.
“The move comes amidst a broader pull back in the crypto market after Bitcoin reversed from posting fresh all-time highs last week,” noted James Harte, an analyst with TickMill Group. “Many have attributed the move to profit taking and a simple clearing of the order book given the ferocious rally we’d seen in prior weeks. However, chatter of a bubble in crypto and a potential market top has fuelled uncertainty among retail investors and institutional traders alike with massive outflows seen from crypto funds this week.”
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Sour grapes from the SEC?
Among these explanations is the SEC’s move to strengthen its position in the event that it wants to reject applications to launch Ethereum spot ETFs – similar to Bitcoin – that were approved in January.
Before approving the Bitcoin ETFs, the SEC was criticized for having no basis for denying the launch of these ETFs and was involved in a legal tussle with Grayscale over its rejection of Grayscale’s application to convert the Grayscale Bitcoin Trust into a spot ETF, which the SEC ultimately lost.
Another hypothesis involves the criticism that the agency is being exposed to for pushing its remit to widen its supervision on the cryptocurrency market, in which Ethereum plays a very pivotal role.
“I believe that the SEC is fully aware of the status of Ethereum and may not seek to shock this market suddenly,” said Samer Hasn, part of the crypto research team at Dubai broker XS.com.
While Bitcoin is called digital gold, Ethereum is almost everything else in this crypto world. It is the second largest cryptocurrency by market capitalization with over $420 billion and is very far ahead of the closest other cryptocurrencies.
Not only that, the Ethereum network is the most widely used network ever in various aspects.
ETH accounts for about $60 billion in total locked value (TVL), the most important measure of reliability, for cryptocurrencies in decentralized applications and smart contracts built on the network, that is, more than half of the total locked value in the entire market across more than two thousand protocols whether on the main network or the layer 2 (L2) networks, according to DeFiLlama.
These figures demonstrate the broad adoption of Ethereum versus any other cryptocurrency, and they also may continue to draw the attention of regulators for a long time.
Markets staying optimistic on Ethereum
Despite this negative atmosphere, markets appear to remain optimistic. The long to short ratio of Ethereum-related derivatives remains at about 1.1, despite the relatively very large liquidations that the long positions were subjected to this month, according to CoinGlass. Open interest in Ethereum futures remain also near historical highs at approximately $12 billion.
Options markets indicate continued positive sentiment for Ethereum as well. At Deribit, the put to call ratio is 0.5, while the open interest of these options is more than $3 billion. More than $900 million worth of these positions are for call options betting on the $4,000 levels for Ethereum.
In 2024 Ethereum is expected to make the ‘proto-dank sharding’ upgrade, which will enable cheaper and faster transactions for layer 2 solutions. Layer 2 solutions are protocols that run on top of Ethereum and handle transactions off-chain, bundling and settling them on Ethereum, reducing the congestion and fees on the main network.
“With these upgrades, Ethereum aims to solve the scalability problem that has plagued many blockchain platforms and to gain an edge over its competitors, such as Solana, which claims to offer higher throughput and lower costs,” said Pierre Debru, who heads up quantitative research at WisdomTree. “Ethereum’s vision is to become the base decentralised blockchain that supports a variety of layer two solutions and decentralised applications (dApps), creating a web3 world where users have more control, privacy, and freedom over their online activities. This is a compelling scenario for Ethereum investors.”
