Ethereum ETFs Spark ‘Sell the News’ Reaction: ETH Slips 12% After Second Trading Day

Key Takeaways

• Ethereum ETFs debuted on July 23, but data reveals a bearish trend.
• Substantial outflows from Grayscale’s Ethereum Trust (ETHE) significantly weighed on the overall performance of the ETFs.
• ETH’s price declined by 12% following the launch, and further downward pressure may be likely.

Ethereum ETFs kicked off to a strong start on July 23, pulling nearly $2 billion in volume  over the first two days. However, despite this high volume, the initial data revealed a concerning trend: a negative net flow, indicating that investors withdrew more funds than they deposited.

As anticipated in our previous analysis, the launch of Ethereum ETFs appears to have triggered a “Sell the News” event, with ETH tumbling by 12%. This downturn raises questions about the sustainability of ETH’s bullish momentum, which began on July 5. Specifically, it remains to be seen whether this decline is a temporary correction or the beginning of a new major downtrend.

Ethereum ETFs Data 

According to data  from Farside, US-based Spot Ethereum ETFs experienced a net outflow of $113.3 million on their second day of trading. This was primarily driven by a significant outflow of $326.9 million from Grayscale’s Ethereum Trust (ETHE).

In contrast, the majority of the new spot ETH ETFs saw net inflows, with seven out of nine funds experiencing positive flows. Fidelity’s Ethereum Fund (FETH) and Bitwise’s Ethereum ETF (BITW) led the way, with inflows of $74.5 million and $29.6 million, respectively. Collectively, the ETFs posted net inflows of $106.6 million on their first day of trading.

ETH Price Analysis 

On July 5, Ethereum’s price stumbled to a low of $2,830, revisiting a level that had previously served as a macro low in May and a support level in April. This marked a turning point, as the price subsequently rebounded and initiated an uptrend, ultimately achieving a high of $3,550 by July 22.

A bearish divergence emerged on the 4-hour chart, as the price action contradicted the downward trend of technical indicators such as the RSI and MACD. This divergence often precedes a weakening of momentum and can be a precursor to a potential reversal.

As anticipated, Ethereum’s price declined by 12% to $3,140 on July 25. The prospect of further decline remains, although a minor bounce is possible in the short term. The RSI on the 4-hour chart, currently in the oversold zone at 23%, supports this possibility.

However, the trajectory of Ethereum’s price from July 5 remains uncertain. The recent uptrend can be interpreted as either a five-wave or three-wave increase, and the modest nature of the last higher high adds to the ambiguity. This mixed signal clouds the outlook for Ethereum’s price moving forward.

Bearish scenario 

As previously noted, a five-wave impulse emerging from the July 5 low would indicate that the corrective phase that began in March has concluded. A crucial condition for this confirmation would be the final wave of the impulse breaking above the $3,500 zone, providing a clear signal that the corrective stage has ended.

It’s worth noting that the high on May 27, $3,977, was lower than the March 11 high of $4,092. This was followed by a reversal to horizontal support at $2.820 on July 5.

Given the recent price rejection, it is likely that the uptrend from July 5 was a three-wave ABC pattern, potentially representing the X wave within a more complex WXYXZ pattern that has been extended by two additional waves beyond initial expectations.

If this scenario unfolds, Ethereum’s price could potentially retreat to the $2,800 area or even breach this level, considering the July 22 high was substantially lower than the previous peak on May 27.

The key level to monitor is the $3,000 mark. Should Ethereum’s price drop below this level, which is only 4.7% away from its current price, a decline to $2,800 and potentially even lower would become increasingly likely.