Key Takeaways:
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U.S.-listed Ether ETFs saw heavy outflows, indicating waning institutional interest as network fees, staking and leverage demand declined.
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ETH futures premiums and open interest declined, indicating cautious positioning and limited confidence, with out a clear transition to an outright bearish move.
Ether (ETH) plunged to $2,800 on Wednesday, resulting in $165 million in bullish futures position liquidations. The 13% weekly decline in ETH price was accompanied by heavy outflows from Ether exchange-traded funds (ETFs) as risk aversion increased resulting from concerns about the substitute intelligence sector.
The tech-heavy Nasdaq index fell 1.8% on Wednesday, adding to Ether investors' fears that more downside could follow.
ETH/USD (blue) vs. total crypto cap/USD (red). Source: TradingView
Shares of Oracle (ORCL US) fell 5.5% on Wednesday after private lender Blue Owl Capital (OWL US) reportedly withdrew support for a planned $10 billion data center partnership. Investor sentiment weakened after reports that Blue Owl Capital had previously taken a stake in Oracle facilities in Texas and New Mexico. Oracle's rising debt protection costs have sparked a broader risk aversion movement.
Markets are actually focused on the discharge of the US consumer price index (CPI) report on Thursday, a vital event for risk assets. Weaker-than-expected CPI growth of two.7% in November allowed Ether price to reclaim the $2,950 level. Traders expect this cooling inflation could prompt the Federal Reserve to introduce additional stimulus, especially as recent numbers point to increasing stress within the labor market.
What keeps ETH price low?
Ether has underperformed the broader cryptocurrency market by 6% over the past week, with a number of the bearish sentiment tied to demand for Ether ETFs.
Daily net inflows from US-listed Ether exchange-traded funds, USD. Source: Farside Investors
U.S.-listed Ether ETFs recorded net outflows of $553 million since Thursday, reversing the inflow trend of the previous two days. These instruments currently hold $17.5 billion price of ETH and are typically linked to demand from institutional investors. Even more worrying, demand for leveraged positions in ETH futures has fallen by 13% over the past week.
ETH Futures Aggregate Open Interest, USD. Source: CoinGlass
Aggregate open interest in ETH futures fell to $28.1 billion on major exchanges after peaking at $32.4 billion on December 10. While a decline in leveraged positioning doesn’t mechanically signal bearish sentiment, it does put pressure on bullish belief, especially as ETH traded 41% below its all-time high of $4,957. To determine whether bears are gaining control, investors often take a look at the monthly futures premium.
ETH three-month futures premium on an annual basis. Source: laevitas.ch
Ether monthly futures traded at a 3% premium to identify markets on Wednesday, indicating weak demand from long positions. Under neutral market conditions, this premium is often between 5% and 10% to bear in mind the price of capital. The declining activity on the Ethereum network has also affected investors' expectations for the worth of Ether.
Ethereum DApps Weekly Fees, USD. Source: DefiLlama
Fees generated by decentralized applications (DApps) on the Ethereum network fell to $68 million within the last seven days, in comparison with $98 million 4 weeks ago. Demand for ETH is closely linked to on-chain activity, as higher usage creates stronger incentives for long-term accumulation. The total amount of Ether locked also fell to 35.69 million ETH from 35.76 million ETH a month ago, indicating less willingness to carry.
Ether ETF outflows within the US reflect weaker investor interest amid declining activity on the Ethereum network and declining demand for leveraged positions. More than a couple of days of inflows will likely be needed for traders to rebuild confidence, given the final lack of economic forecasts and increasing risk aversion across markets.
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