ETH Sees Strong Support From Institutions Amidst Market Volatility

KEY TAKEAWAYS:

  • Macro pressures kick in bearish sentiments over the cryptocurrency market
  • Institutional investors inject $46.8 million in ETH projects for the next bull run
  • High OTM put-call skew reflects short-term bearish sentiments

After a historic plunge of 30% in May, the price of Bitcoin saw a weak recovery of 4% in the subsequent week — shrinking the total crypto market capitalization to $1.2 trillion. Despite wild swings in the crypto market, the price of Ether soared by 10% last week and could still be poised for a strong recovery; probably a question of “when” rather than a matter of “whether”. 

The rallying of Ether-backed projects is deemed to be driven by institutional forces and the boom in decentralized finance (DeFi) projects, evidently from higher inflows of Exchange Traded Products (ETPs).

However, heavy blows from the regulators have sent cryptocurrency traders hunting for a new alpha in Ether. 

Seeking to provide clarity and protect retail investors, regulators continued to impose stricter rulings on cryptocurrency projects last week. For instance, Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), highlighted interest in working with Congress to regulate cryptocurrency exchanges and support protection gaps for investors. On the other side of the globe, Thailand is clamping down on DeFi platforms. 

Hence, regulators are starting to realize that while cryptocurrency may be an elusive catch, service intermediaries are much easier targets. This will inevitably lead to a spillover effect and send bearish signals to the whole cryptocurrency market. 

Ether-Backed Projects Poised for the Next Bull Run? 

Despite regulatory pressures, the cryptocurrency ecosystem is witnessing positive signs of fresh capital inflows. 

According to the 2021 Trends in Investing Survey, more than 25% of financial advisers have revealed keen interest in recommending cryptocurrency investments to their clients in the coming year. 

Institutional investors have injected $74 million into the cryptocurrency market last week in a bid to capitalize on undervalued cryptocurrency assets after the crash. Ether-backed products now represent 63% of the institutional inflows, thus constituting the second-highest share of assets under management (AUM). 

The record amount of inflow shows that institutional investors see potential in Ethereum’s project in the next bull run. 

Market Analysis of Cryptocurrency Pairs, Index and Derivatives

ETH/BTC 

Strong support for ETH as ETH/BTC pair is buoyed above the key support level near 0.07, despite a cryptocurrency volatility index (CVI) of 116 for the past 30 days. 

ETH Transaction Fees

Although Layer 2 scaling such as Polygon may not save Ethereum, it has lowered the gas fees to 29.75 Gwei on June 1, 2021.

USD Index and BTC

With the U.S. money supply jumping by 40% within the past year, investors are concerned about possible inflation in the dollar. Well-known as a potential hedge against inflation, BTC may still expect a near-term upside of $40,000, according to the Gamma levels. 

Derivatives

The BTC and ETH derivatives market showed signs of short-term bearish position with an increase in OTM put-call skew last week.

However, the good news is that the funding and basis rates for derivatives are finally stabilizing. 

Summary

With high OTM put-call skew, the cryptocurrency market may experience a short-term pullback. However, this could be an opportunity to invest in undervalued cryptocurrency assets. While it is difficult to predict with any level of certainty what the market has in store for BTC and ETH, we can safely assume they will continue to command much of the attention among their litany of junior cryptocurrency partners.