Traders Short Ether Following Grayscale Withdraw of Ether Futures ETF Bid

The decision by Grayscale Investments to pull its bid for Ether futures exchange-traded fund (ETF) draws attention to the short and long positions. The possibility of a 3% recovery in Ether’s price would ultimately erode $345 million in short positions.

A scrutiny into the Ether traders reveals they accumulated short positions in the past 24 hours amid the withdrawal of the bid by Grayscale Investments. Meanwhile, Ether is trading around the $3010 critical support level following the 1.85% drop in the same period, as per CoinMarketCap data.

Traders Rushing to Short Ether

The scrutiny of the liquidation maps revealed that traders are convinced of a likely plunge in the price in the near term. The liquidation map indicates that $345 million stacked in the short positions will liquidate if the price rallies by 3%.

In contrast, Ether’s price drop by 3% to test $2920 will wipe out $237M held in long positions.  A review of CoinGlass data shows that traders anticipate Ether’s price decline as inevitable. 

The rush to short Ether emerges following the decision by Grayscale Investments on Tuesday, May 7, to withdraw its application for Ether’s futures ETF. The unprecedented withdrawal was a shocker as it occurred 21 days before the US Securities and Exchange Commission (SEC) decided on the bid. 

The withdrawal arises amid the speculation that the SEC could classify Ether (ETH) as a security. Also, the fate of Gary Gensler-led SEC approving spot Ether ETF applications later this month is uncertain. 

The move by Grayscale to abandon its ETH futures ETF plan erodes the optimism witnessed at the onset of this year. Analysts are increasingly doubtful that the SEC will approve the spot Ether ETF as the May 23 deadline edges closer. 

Pessimism Regarding Spot Ether ETF Approval

The crypto community shares sentiments similar to those of analysts, leaving the digital asset space engulfed by growing pessimism. A survey conducted by the New York-headquartered cryptocurrency predictions firm Polymarket reveals that 92% of the respondents downplayed the chances of spot Ether ETF approval. 

The Polymarket’s poll participants are pessimistic about the securities watchdog approving the spot Ethereum ETF by the end of this month. Only 6% are hopeful of approval this month. 

The uncertainty spreads amid questions over the overall usage of Ethereum. Also, Ethereum suffers from an absence of speculative interest. 

James Check, who specializes in on-chain analysis, revealed in a Tuesday, May 7 post on X, formerly Twitter, that Ethereum suffers low usage. The analyst also identified as Checkmatey lamented that the burn mechanism mismatches the issuance to validators.  

MicroStrategy chair Michael Saylor ruled out that SEC will approve the spot Ether ETFs. He expressed concerns that the SEC is bound to classify Ether as security, unlike Bitcoin. 

Ether Underperforming Amid Inability to Attract Speculative Interest

Glassnode brief, published on Wednesday, May 8, revealed the underperformance of Ether in this cycle compared to Bitcoin in the present cycle. Glassnode explained that underperformance arises from the measurable lag in attracting speculative interest from short-term holders (STH). 

The speculation on Ether’s performance manifests a mixed bag, with some traders insisting on Ether’s price breakout this year. A pseudonymous crypto trader, Ash Crypto, informed his million followers that Ether could replicate the 2020’s Q3 breakout in the fourth quarter. Ash Crypto emphasized to his 1.1 million followers on X that Ether would match the historical pattern witnessed in 2020 Q3. 

Crypto commentator identified as The CryptoPalace had informed his 20,000 X followers in a May 1 update that Ethereum would possibly have sideways movement around the support zone. The commentator observed that Ethereum currently portrays a falling wedge pattern, leaving the price to test the notable support zone. 

Ethereum Losing Deflationary Trait

Blockchain analytic firm CryptoQuant noted that before Dencun upgraded, the network activity on the Ethereum network saw higher fees burned, leading to lower Ether supply. 

CryptoQuant indicated that the Dencun upgrade saw the fees burned, decoupling the network activity and likely to cause increased circulating supply. As such, Ethereum will lose the deflationary aspect imposing pressure on the ETH price.