Ethereum price dropped below $2,200 today as risk assets plummeted. (Photo credit: S3studio/Getty Images)
Amid widespread losses across the cryptocurrency market and risk assets in general, Ethereum suffered a major sell-off today, dropping to its lowest level this year.
The price of Ethereum, the second-largest digital currency by market cap, fell below $2,200 early today, according to data from CoinMarketCap.
Additional figures from CoinMarketCap show that just two days ago it was trading above $3,000.
In emailed comments, Tim Enneking, a managing partner at Psalion, emphasized the severity of the decline, calling it “surprising, especially by the standards of the past few years.”
Additional figures from CoinMarketCap show that several other cryptocurrencies, including Bitcoin and Solana’s SOL token, also experienced notable declines.
Major stock indexes, including the benchmark S&P 500 and Dow Jones Industrial Average, experienced big swings.
Multiple bearish factors
Analysts cited multiple headwinds in explaining the decline in Ethereum prices, including concerns about a weak U.S. economy that fueled a broader sell-off in risk assets.
For example, Greg Magadini, director of derivatives at digital asset data provider AmberData, highlighted last week’s release of the U.S. July employment report and announcements by members of the Federal Open Market Committee, saying they contributed to a “plummet in risk assets.”
While agreeing that these economic fears have prompted investors to flee riskier assets, market observers surveyed for this article also highlighted other factors.
“Ethereum appears to be experiencing volatility as a result of the current macro investment environment,” Brett Shiffling, investment advisor at Gerber Kawasaki Wealth & Investment Management, said in an email.
“Last week, news of the 'Japanese Yen carry trade' following a more hawkish Fed meeting in the US caused market participants to worry over the weekend. I believe this news, combined with a news selling event as Ether Spot ETFs began trading in the US market, were the main drivers of this correction,” he said.
“Risk-on assets like cryptocurrencies are selling off across the board as investors worry about a possible economic recession ahead of the presidential election,” Schiffling said.
The impact of Ethereum ETF
Many analysts highlighted the impact that the approval of a spot-based Ethereum exchange-traded fund had on the market.
While these funds have certainly attracted interest, they have not generated the same trading volume as bitcoin-based spot ETFs.
Enneking highlighted the role this development has played in Ethereum's price movement in 2024, citing it as a major factor in the digital asset's recent weakness.
“Aside from disappointing correlation with fiat equity markets and crypto being lumped into a common basket of ‘risk-on assets’, I believe the main reason for the decline is disappointment in the market reaction to the spot ETH ETF. One could argue that the impact of the ETF was priced in, but that still doesn’t explain why ETH has massively underperformed versus BTC this year.”
“All of this, plus the 'Trump trade' appearing to disappear as the Democrats changed their presidential candidate, weakened the ETH price floor. The floor collapsed last week as low US employment numbers were released, expectations changed from 'no landing' or 'very soft landing' to 'potential hard landing' and sentiment shifted from 'maybe 25 basis points in September' to '25 or 50 basis points in September.'”
History will repeat itself, say analysts
Brett Munster, portfolio manager at Blockforce Capital, also spoke about the important role that Ethereum ETFs are playing in the high-profile cryptocurrency market.
“Ethereum, following the launch of the Ethereum ETF, is following the same path that Bitcoin followed following the launch of its ETF, and for the same reasons,” he said in an email.
“When Bitcoin ETFs launched, all new issuers charged fees of roughly 0.2% to 0.25%. The only exception was Grayscale, which decided to keep its fees roughly 10 times higher than the rest of the market,” Munster said.
“As a result, there has been a large outflow of funds from Grayscale into other lower-cost ETFs,” he noted.
“Similar to the Bitcoin ETF, Grayscale is pricing the ETH ETF's fees 10 times higher than other ETFs on the market,” the analyst said.
“Grayscale's existing trust held approximately $10 billion worth of ETH prior to the ETF's launch,” he continued.
“As we speculated earlier this year, we believed we might see similar outflows as we saw with the Bitcoin ETF, putting $2-3 billion worth of selling pressure on ETH in the first few weeks after launch. We predicted that this selling pressure would exceed net inflows, causing the price of ETH to decline in the first week or two.”
“And that's exactly what happened. Since launch, $2.1 billion worth of ETH has left ETHE.”
'Incredibly Bullish' Impact
As for how these funds will impact Ethereum’s value going forward, Munster expressed optimism.
“Longer term, the approval and launch of an Ethereum ETF would be extremely bullish for the price of ETH,” Munster predicted.
“However, it would not be surprising to see ETH prices drop in the first few weeks as the market weathers the selling pressure caused by the Grayscale switch.”
Disclosure: I own Bitcoin, Bitcoin Cash, Litecoin, Ether, EOS, and SOL.
