Ethereum protocols attract more inflows despite new spot ETFs and weak sentiment
Today's market analysis on behalf of Samer Hasn, Senior Market Analyst at XS.com
August 13, 2024 (Investorideas.com Newswire) Ethereum resumes its notable decline today, falling more than 2%, failing to reclaim the $2,700 level while remaining near its lowest levels since February.
The pressure on Ethereum - which is leading to further weakness in other altcoins - comes amid weak sentiment in the broader market. That weak sentiment comes amid concerns about the health of the US economy and the anticipation of more data, in addition to concerns coming from Japan and the geopolitical ones from the Middle East.
Ethereum's sharp declines came despite a set of positive factors, the most important of which was the launch of spot ETFs in the US twenty days ago. However, the launch of these funds remains questionable in terms of its ability to attract further adoption of the most widely used cryptocurrency.
The spot ETFs have attracted only below $5 million in net inflows as of yesterday. However, excluding outflows from the Grayscale Ethereum Trust (ETHE), net inflows would be around $1.9 billion. The net assets of the funds as a whole are around $7.5 billion, representing 2.32% of Ethereum's market cap, according to SoSo Value.
The goal of launching spot ETFs is to give investors the flexibility to gain exposure to Ethereum without the burden and risk of holding it in digital wallets. While existing investors switching to spot ETFs could cause outflows from the Ethereum network and its main protocols, this does not appear to be the case.
Since the launch of the funds, Ethereum protocols have continued to attract inflows, albeit not at the pace seen earlier this year due to difficult market timing. The total value locked (TVL) of these protocols, which number more than a thousand, is over $49 billion, or 19 million ETH, according to DeFiLlama. Meanwhile, Ethereum-denominated TVL hit its highest level since 2022 this month. This coincides with relatively low network activity that has caused fees collected this week to fall to their lowest levels since 2022.
Another key factor that may limit the ability of these ETFs to attract investors is staking, which is only found on Ethereum protocols. The largest staking protocol by far, Lido, has a total locked value at 9.79 million ETH today, which is slightly lower than it was on July 23 when the spot funds launched at 9.86 million.
We will see in the coming months whether Ethereum ETFs can actually challenge the protocols for market share. However, this takes further boost for broader market's sentiment to drive up the very low risk appetite. For example, the Capriole Investments Speculation Index, which compares altcoins performance to Bitcoin, is at just 10%, not far from this year's lows, indicating a low level of risk appetite.
The expected rate cut could have a dual effect on investor funds. It could reduce the attractiveness of staking returns, while also boosting risk appetite. Staking returns are closely tied to prevailing interest rates in the market.
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