Markets
Why Ethereum Drove the Crypto Market Lower This Week
If Ethereum ETFs fail to gain traction, neither will altcoins.
The cryptocurrency market fell this week as the momentum of the past few weeks faded. One of the main reasons for this disappointment was relatively weak launch of Ethereum (ETH -0.01%) ETFs in the United States According to Cointelegraph, Ethereum ETFs saw $113 million in outflows on their second day of trading, in stark contrast to the dynamics we saw with Bitcoin (Bitcoin 0.61%) of ETFs. And that put a damper on some of the optimism for other tokens.
According to data provided by S&P Global Markets InsightsEthereum has fallen as much as 12.1% over the past week, Lido marked Ether (STETH 0.04%) was down 12.3% and Cardan (ADA 1.31%) fell 13.1%. The tokens are currently down 8.4%, 8.3% and 6.5% respectively as of noon ET Friday.
The Failure of the Ethereum ETF
There are now eight Ethereum ETFs trading, including the Grayscale Trust, which has been converted into an ETF. The Grayscale Ethereum Trust saw $811 million in outflows in its first two days of trading, offsetting $784.3 million in inflows to seven other ETFs during that period.
One of the main reasons why cryptocurrencies have seen strong growth in 2024 was the introduction of Bitcoin ETFs earlier this year and speculation that this would lead to more ETFs for other tokens. Ethereum is the first to get ETFs, but the door has been opened to other tokens like NEAR and Cardano.
If there is no demand for Ethereum ETFs, I am not sure there will be demand for even smaller tokens. And that is why altcoins are down, as are Ethereum and its staked descendants.
Cardano hack attempt
Another big news story was an attempted attack on the Cardano blockchain involving a user using a DDoS attack aimed at disrupting the network. A developer stopped the attack and may have also mined the attacker’s funds.
Attacks on blockchain are not new, but it is remarkable that such a weakness could be exploited.
Altcoins Face Questions
None of the week’s news was game-changing for blockchain itself, but it does raise uncertainty about demand for tokens beyond Bitcoin, which has emerged as the most valuable cryptocurrency.
Altcoins and utility blockchains clearly have some value, but the value of the tokens themselves does not appear to be as high as Bitcoin, which was a large part of this year’s bullish thesis.
I think the industry is going to have to go back to creating actual products and adding value to the blockchain through utility and not rely on ETFs for demand. It’s possible that the Ethereum ETF will recover, but there may not be much of an ETF market outside of Bitcoin.
I still think that blockchain-related altcoins with high user and developer activity will do well, but this will be a long-term bet for investors. The focus for this week is on retail demand for crypto ETFs, and there doesn’t seem to be much demand there.
Travis Hoium has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and Near Protocol. The Motley Fool has a disclosure policy.