Ether Liquidity Plummets 40% On Exchanges After ETF Debut

Christian Encila

9 months ago

3 mins read

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Liquidity of Ether on US exchanges has plunged as much as 40% since the first spot Ether exchange-traded funds entered the market on July 23, 2024.

That is a move rather expectedly coming for traders and analysts that had previously viewed the ETFs as a means to improve market liquidity and therefore stabilize prices.

Instead, what has taken place is rather different: the average market depth of 5% for ETH pairs has fallen to around $14 million. Meanwhile, offshore exchanges are posting a similar decline at about $10 million in liquidity.

Ether Liquidity Down

Following the launch of nine ETFs in July, Ether’s liquidity plummeted 20% on US markets and 19% on offshore locations.

The decline in liquidity is one thing that raises concerns and, more importantly, it signals greater sensitivity to large orders. With shallow market depth, it follows that even minor trades can result in dramatic changes in prices.

Jacob Joseph, a research analyst at CCData, said that liquidity is still better than at the beginning of the year but has really dropped almost 45% since its peak in June. Poor market conditions and seasonal effects are mainly responsible as summer months will have fewer trading activities.

Market Dynamics And ETF Performance

Their introduction was expected to increase liquidity, much as it had done in the case of the Bitcoin ETFs introduced earlier this year. However, the Ether market hasn’t responded as well.

In the period since their introduction, Ether ETFs have suffered from over $500 million in cumulative outflows. That has contributed to a general decline in liquidity, making markets even more volatile.

ETH is currently trading at $2,289. Chart: TradingView

Surprisingly, ETFs have had their own performances. For instance, Grayscale’s ETHE ETF witnessed an outflow as high as $10.7 million, while BlackRock’s ETHA ETF saw an inflow as low as $4.7 million.

Such mixed results hint that Ether markets are yet to come out of their troubled times, with investments reflecting investors’ reluctance to commit capital in unsure times.

Implications For Traders And Investors

A drop in liquidity is a challenge for traders and investors alike, actually. In states of low liquidity, the slippage is much higher, and the price for the execution is costlier.

The big problem lies in the fact that the institutional investors like their markets stable and with good liquidity. If these large players stop full operations, that could create some kind of vicious cycle when the liquidity will be even lower and prices go further down.

For now, Ether trades hands at about $2,258, down over 4% in the past 24 hours. The wider cryptocurrency market is also under stress: All major altcoins, including Solana and Ripple, are in the red, posting losses in a range between 2% to 4%.

Going forward, market participants will be in a position where expected benefits of the ETF introductions have not materialized for Ether. With potential interest rate cuts by the Federal Reserve, market attention in the future might shift to how these changes are going to affect liquidity and trading activity in the months ahead.

Featured image from Getty Images, chart from TradingView

Christian Encila

They say journalists never truly clock out. But for Christian, that's not just a metaphor, it's a lifestyle. By day, he navigates the ever-shifting tides of the cryptocurrency market, wielding words like a seasoned editor and crafting articles that decipher the jargon for the masses. When the PC goes on hibernate mode, however, his pursuits take a more mechanical (and sometimes philosophical) turn.

Christian's journey with the written word began long before the age of Bitcoin. In the hallowed halls of academia, he honed his craft as a feature writer for his college paper. This early love for storytelling paved the way for a successful stint as an editor at a data engineering firm, where his first-month essay win funded a months-long supply of doggie and kitty treats – a testament to his dedication to his furry companions (more on that later).

Christian then roamed the world of journalism, working at newspapers in Canada and even South Korea. He finally settled down at a local news giant in his hometown in the Philippines for a decade, becoming a total news junkie. But then, something new caught his eye: cryptocurrency. It was like a treasure hunt mixed with storytelling - right up his alley!

So, he landed a killer gig at NewsBTC, where he's one of the go-to guys for all things crypto. He breaks down this confusing stuff into bite-sized pieces, making it easy for anyone to understand (he salutes his management team for teaching him this skill).

Think Christian's all work and no play? Not a chance! When he's not at his computer, you'll find him indulging his passion for motorbikes. A true gearhead, Christian loves tinkering with his bike and savoring the joy of the open road on his 320-cc Yamaha R3. Once a speed demon who hit 120mph (a feat he vowed never to repeat), he now prefers leisurely rides along the coast, enjoying the wind in his thinning hair.

Speaking of chill, Christian's got a crew of furry friends waiting for him at home. Two cats and a dog. He swears cats are way smarter than dogs (sorry, Grizzly), but he adores them all anyway. Apparently, watching his pets just chillin’ helps him analyze and write meticulously formatted articles even better.

Here's the thing about this guy: He works a lot, but he keeps himself fueled by enough coffee to make it through the day - and some seriously delicious (Filipino) food. He says a delectable meal is the secret ingredient to a killer article. And after a long day of crypto crusading, he unwinds with some rum (mixed with milk) while watching slapstick movies.

Looking ahead, Christian sees a bright future with NewsBTC. He says he sees himself privileged to be part of an awesome organization, sharing his expertise and passion with a community he values, and fellow editors - and bosses - he deeply respects.

So, the next time you tread into the world of cryptocurrency, remember the man behind the words – the crypto crusader, the grease monkey, and the feline philosopher, all rolled into one.

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