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.
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