Ethereum futures markets suggest rally to $3.7K is highly unlikely

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Ether (ETH) price might be on the brink of its most significant event in terms of a spot ETH ETF integrating the altcoin with traditional financial markets, yet its price is not responding as expected. In fact, on June 24, Ether reached its lowest level in over a month, falling to the $3,250 level. Although ETH eventually reclaimed the $3,400 support on June 25, both onchain and derivatives metrics suggest limited upside potential.

Analysts say the spot ETH ETF launch could disappoint

Some analysts believe that the timing of the Ethereum spot exchange-traded fund (ETF) launch is unlikely to result in substantial net inflows under the current market conditions. Even though the regulator dropped its investigations into Consensys, a prominent Ethereum ecosystem company, and shelved the potential classification of Ethereum staking as a security, the broader economic environment remains challenging.

Bloomberg ETF analysts Eric Balchunas and James Seyffart project that Ethereum ETFs could attract between $1 billion and $2 billion in the initial weeks. Likewise, Stephen Richardson, managing director of financial markets at Fireblocks, told Cointelegraph that he expects significantly lower inflows at the Ethereum ETF launch.

Markus Thielen, head of research at 10x Research, noted that the revenue Ethereum generates is “minuscule” compared to its market capitalization, indicating that the asset does not currently represent a “viable, sufficiently cash-flow-producing investment.” Thielen also pointed out that the yields from Ether staking remain lower than those from United States Treasury bonds.

Despite a more favorable cryptocurrency regulatory environment in the U.S., it is crucial not to overlook macroeconomic trends. The U.S. Conference Board reported on June 25 that its consumer confidence index fell to 100.4 from 101.3 in May, suggesting that households are concerned about inflation, according to Yahoo Finance.

Also on June 25, U.S. Federal Reserve Governor Michelle Bowman reiterated that interest rates would stay higher “for some time,” as reported by Yahoo Finance. Bowman highlighted that inflation is still “elevated” and emphasized that any loosening in financial conditions or additional fiscal stimulus could further increase inflation. The Federal Reserve’s median projection is for just one rate cut before the year ends, thereby sustaining the appeal of fixed-income investments.

High Ethereum network fees and reduced demand for ETH leverage

The Ethereum network faces its own challenges, including relatively high gas fees, which have hovered around $3 per transaction on the base layer. This issue partly explains why competing blockchains like BNB Chain (BNB) and Solana (SOL) have been able to capture significant volumes.

Top blockchains ranked by 7-day DApps volume in USD. Source: DappRadar

Despite these challenges, Ethereum remains the undisputed leader in total value locked (TVL) and decentralized application volumes. However, according to DappRadar, there was no demand growth in the past seven days, while competitors such as Solana and Aptos saw increased activity and deposits. While Ethereum’s layer-2 ecosystem is robust, one should not overlook the challenges posed by these incumbents.

To understand the sentiment of Ether’s professional traders, one must examine ETH futures metrics. The Ether futures premium indicates the difference between monthly contracts in derivatives markets and the spot level on regular exchanges. Typically, a 5% to 10% annualized premium (basis) is expected to compensate for the extended settlement period.

Ether 2-month futures annualized premium. Source: Laevitas.ch

The Ether futures premium fell below the 10% threshold on June 21 and has since remained in a neutral range. This shift represents a change in trend after five weeks of bullish sentiment and is particularly concerning given that U.S. Securities and Exchange Commission Chair Gary Gensler confirmed the Ethereum spot ETF launch by September.

As Markus Thielen pointed out, justifying Ethereum’s token valuation is challenging, given that the network’s revenue is only $23.9 million per week, based on DefiLlama data. By comparison, Tron and Solana, which hold far fewer deposits, generate $8.8 million and $9.8 million per day, respectively. Therefore, if analysts’ expectations of low spot ETF inflows are confirmed, the likelihood of Ether surpassing $3,700 in the near term appears slim.