Bitcoin Drops Below $68K, Ether Near $3.7K Amid ETH ETF Uncertainty

Bitcoin drops below $68K, Ether falls to $3,700 amid 3% market decline as SEC decision on ETH ETFs looms.

By Barry Stearns

5/23, 10:50 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • Bitcoin dropped below $68,000, down nearly 3%, while Ether fell to near $3,700 amid regulatory uncertainty over ETH ETFs.
  • The CoinDesk 20 Index declined over 2%, with major altcoins like DOGE, AVAX, SHIB, and LINK falling more than 4%.
  • A strong U.S. economy report and a large ETH sell order from Symbolic Capital Partner contributed to the crypto market's decline.

Market Reaction to Regulatory Uncertainty

Cryptocurrency prices experienced a notable decline on Thursday as market participants awaited a crucial U.S. regulatory decision on spot Ether (ETH) exchange-traded funds (ETFs). Bitcoin (BTC) fell below $68,000 during the early U.S. trading session, down from around $70,000 earlier in the day, marking a nearly 3% drop over the past 24 hours. Ether, which had surged to its highest price since mid-March, reaching above $3,900 early Thursday, tumbled to near $3,700, though it remained in the green over the past 24 hours.

The broader digital asset market also felt the impact, with the CoinDesk 20 Index (CD20) declining over 2%. Major altcoins such as Dogecoin (DOGE), Avalanche's native token (AVAX), Shiba Inu (SHIB), and Chainlink (LINK) all fell more than 4% within an hour, according to CoinDesk data. The sell-off was exacerbated by a fresh S&P Purchasing Managers' Index report indicating a robust U.S. economy, which drove a surge in the dollar and dampened expectations for interest-rate cuts. This broader market reaction saw the S&P 500 fall 0.6% from its opening price.

Ether ETF Speculation and Market Volatility

The anticipation surrounding the potential approval of spot Ether ETFs has significantly influenced market dynamics. According to a report by data provider CryptoQuant, Ether is expected to experience heightened volatility due to a spike in exchange inflows, which reached the highest level since March. The daily net flow of ETH, tracking inflows and outflows to exchanges, hit 62,000 Ether ($231 million) this week. High exchange flows are typically associated with increased volatility.

This surge in deposits followed a significant rally in Ether prices, which rose by 22% in two days after Bloomberg analyst James Seyffart suggested that the odds of spot Ether ETF approval had increased to 75%. Multiple reports indicated progress in the filing process with the U.S. Securities and Exchange Commission (SEC). Traders responded by aggressively opening ETH long positions on perpetual exchanges and buying spot, resulting in the largest daily spot buying from ETH permanent holders so far in 2024. This increased demand led to a short squeeze, with 9,300 ETH being liquidated on the short side over a 48-hour period.

CryptoQuant warns that if an Ether ETF application is delayed or denied, a significant price reaction could occur due to high open interest, which currently stands at a record high of $11.7 billion.

Optimism for Spot-Ether ETFs

The cryptocurrency market is abuzz with optimism as the SEC appears to be warming up to the idea of approving ETFs that invest directly in Ether. This shift in sentiment was sparked by a Bloomberg News report on May 21, revealing that the SEC had recently contacted exchanges with spot Ether ETF filings. This development has led to a flurry of document filings from major fund companies, including ARK 21Shares, Fidelity Investments, Invesco Ltd., Franklin Resources Inc., and VanEck.

Previously, many fund companies had anticipated a rejection from the SEC, based on less optimistic private discussions compared to those held before the approval of spot-Bitcoin ETFs in January. However, the recent SEC outreach has significantly altered expectations. Approval of spot-Ether ETFs would allow retail investors to trade Ether with greater ease, similar to the convenience provided by spot-Bitcoin ETFs.