On Monday, the Ethereum network experienced a significant uptick in validator exits, coinciding with a broader market downturn. On the same day, there was a spike in inflows into exchange-traded funds (ETFs) that track the spot price of Ethereum (ETH).
This has once again brought to the fore the debate around whether the launch of spot ETH ETFs would impact staking on the Ethereum network.
Ethereum Validators Unstaked Their Coins to Prevent Losses
On Monday, the general market witnessed a significant decline, causing the values of several assets to plummet to multi-year lows. That day, ETH’s price plunged to a seven-month low of $2,100 before rebounding.
Due to the market downturn and the decline in ETH’s value, the number of validators who voluntarily left the Ethereum Proof-of-Stake (PoS) network totaled 3,199 on that day, representing the highest number of exits recorded in the last month.
When a validator decides to leave the network, they withdraw their staked ETH. This is often due to changes in the broader cryptocurrency market, such as price volatility, declining staking rewards, or the desire to diversify investments.
Interestingly, spot ETF inflows totaled $49 million on the same day. The timing of these events is notable, given the debate about the effects of spot ETH ETFs on staking.
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Before the launch of spot ETH ETFs, analysts were divided on whether the introduction of these funds would affect staking activity on the Ethereum network.
As earlier reported, Matthew Sigel, Head of Digital Assets at VanEck, suggested that staking yields could decline once the funds became tradable, potentially leading validators to move their coins from staking protocols into these ETFs. In contrast, research firm CCData Research argued that ETFs would not offer significant returns to encourage stakers on the Ethereum network to withdraw their coins.
Institutional Investors May Be Responsible, Analyst Says
In an exclusive interview with BeinCrypto, Juan Pellicer, Senior Researcher at on-chain data provider IntoTheBlock, shed light on the potential reasons behind the recent spike in validator exits from the Ethereum network and the increased inflows into ETH ETFs.
“The most likely scenario for inflows into the ETH ETF involves TradFi institutions entering the ETF market, taking advantage of the sharp price drop, and positioning themselves for potential higher prices,” Pellicer said.
He added further:
“Another potential reason for the inflows into the ETH ETFs could be TradFi hedge funds executing a basis trade (long spot ETF, short CME futures). The CME ETH basis remains positive, indicating that this trade is still profitable. This suspected trade has been prevalent for BTC since the ETF launch and is probably one of the reasons for the high inflows into BTC ETFs.”
On whether ETFs present gains attractive enough for validators to unstake their coins, Pellicer said:
“The majority of Ethereum stakers are DeFi natives. I don’t expect many of these crypto institutions to neglect the staking yield and switch to ETFs. Moreover, their infrastructure might not allow access to the traditional finance rails needed to invest in ETFs.”
ETH Price Prediction: Weak Buying Pressure Puts Altcoin at Risk
ETH trades at $2,673 at press time, recording a 10% price surge over the past 24 hours. Its price movements assessed on a 12-hour chart show that the bearish sentiment trailing the altcoin remains significant, putting it at risk of shedding these gains.
For example, the dots of its Parabolic Stop and Reverse (SAR) indicator lie above its price at press time. This indicator tracks an asset’s trend direction and identifies potential reversal points. When its dots rest above an asset’s price, the market is said to be in decline, as selling pressure remains weak.
Further, the double-digit rally in ETH’s price in the past 24 hours has been accompanied by a 3% drop in trading volume. When an asset’s price increases while trading volume drops, it indicates that the price movement may not be strongly supported by broad market participation. This signals weak buying pressure and hints at the possibility of a reversal.
If this happens, ETH’s price will drop to $2,11.
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However, if the demand for the leading altcoin continues to spike, its value may rally toward $2,868.69.
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