Ethereum Faces Ongoing Challenges: Will ETF Introduction Change the Course?

This report analyzes Ethereum’s performance during June 2024. In light of the complex trends affecting ETH‘s price, Cryptonews investigates network activities, highlights significant updates within the ecosystem, and considers their implications for Ethereum’s future.

Key insights:

• ETH’s price fell by 10.4%, dropping from $3,803 to $3,406 in June. Concerns regarding a potential Bitcoin price decline and reduced institutional investment contributed to this downturn.
• The SEC postponed the approval of spot Ethereum ETFs, delaying their launch until mid-to-late July, which further affected market sentiment.
• Daily active addresses rose from 384.2k to 466.6k in June, peaking at 610.8k on June 22. However, the creation of new addresses fell by 14.8% during the month. Ethereum’s total value locked (TVL) decreased by 13%, from $66.9 billion to $58.3 billion.
• Transaction fees on Ethereum reached multi-year lows as activity shifted to Layer 2 networks. EIP-4844 lowered transaction costs on these networks but also reduced the amount of ETH burned on the mainnet, which may affect future inflation rates.
• Ethereum retained its dominance in decentralized exchange (DEX) trading volume, although Solana is making notable gains.
• Global NFT sales volume dropped by 25% compared to May. Ethereum led in NFT sales but faced a substantial 17% decline in June.
• The number of daily Ethereum NFT sellers hit its lowest point since June 2021.

What You’ll Discover in This June Ethereum Analysis:

1. 1. What is Ethereum?
   2. ETH Price Declines Despite Expected Spot ETF Boost
   3. Ethereum ETFs: Approval Granted, But When Will They Launch?
   4. Ethereum’s Network Activity
   5. Updates in the Ethereum Ecosystem
   6. Ethereum-Based Protocols and DEXs
   7. Ethereum NFTs
   8. Ethereum Meme Coins
   9. Ethereum in June: A Mixed Outcome with Uncertain Prospects

What is Ethereum?

Established in 2013 by Vitalik Buterin, Ethereum functions as a decentralized blockchain computing platform intended for executing smart contracts and decentralized applications (dApps). The network empowers users to extensively create and innovate with smart contracts, leading to the development of various assets and sectors such as decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), Web3, and more. At its foundation, Ethereum includes an execution engine specifically designed for smart contract processing, known as the Ethereum Virtual Machine (EVM). Additionally, Ethereum utilizes a proof-of-stake (PoS) consensus mechanism, which enhances its scalability and sustainability.

ETH Price Declines Despite Expected Spot ETF Boost

June 2024 witnessed Ethereum (ETH) prices fluctuating, ultimately trending downward.

Concerns regarding a potential Bitcoin (BTC) price drop and diminishing institutional investment in Ethereum funds exerted considerable pressure on the price.

ETH commenced the month at $3,803, dipped to $3,258 on June 24, and then slightly rebounded to $3,480 on June 28. By June 30, the price settled at $3,406, reflecting a 10.4% decrease from the opening price on June 1.

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Several elements contributed to ETH’s price remaining below $3,600 in June. These include deteriorating macroeconomic conditions, a lack of institutional demand indicating reduced interest from larger investors, and regulatory uncertainties surrounding the Ethereum ecosystem.

Ethereum’s exchange-traded products (ETPs) faced a challenging final week of June, recording their highest outflow since August 2022, as reported by CoinShares on June 30. “Ethereum experienced the largest outflows since August 2022, totaling US$61 million, bringing the total outflows over the last two weeks to US$119 million, making it the worst-performing asset year-to-date in terms of net flows,” the report stated.

Crypto funds net flow (data as of June 29). Source: CoinShares

The anticipated launch of spot Ethereum exchange-traded funds (ETFs) in the United States on July 2 was expected to drive ETH prices higher. However, the Securities and Exchange Commission (SEC) has postponed the process.

The SEC requested resubmissions of S-1 forms related to the ETFs by July 8. This development, according to Bloomberg Senior ETF analyst Eric Balchunas, delays the potential launch of these ETFs until mid-to-late July.

Unfortunately, it seems we will have to push back our over/under until after the holiday. It appears the SEC took extra time to respond to people this week (although again, very minor tweaks), and from what I hear next week is a dead week due to the holiday = July 8th the process resumes and shortly thereafter they’ll launch… https://t.co/0ZQR7yiBLt

— Eric Balchunas (@EricBalchunas) June 28, 2024

Ethereum ETFs: Approval Granted, But When Will They Launch?

On May 23, the SEC approved eight 19b-4 filings to list spot Ethereum ETFs on various U.S. exchanges. However, these ETFs cannot commence trading until they receive the necessary S-1 registration statement approvals.

The precise timeline for the launch of spot Ethereum ETFs remains unclear. The SEC has taken additional time to review S-1 forms submitted by prospective spot Ethereum ETF issuers, pushing the launch to mid-July or later.

Unlike 19b-4 forms, S-1 forms do not have a fixed deadline for SEC approval. This means that issuers must await the SEC’s completion of its review and approval process, which can be unpredictable.

On June 17, asset management firm Bitwise submitted an amendment to their spot Ethereum ETF proposal, a move echoed by other major asset managers such as Fidelity and VanEck. On June 21, Fidelity disclosed a $4.7 million seed investment in its Ethereum ETF, as noted in its recent SEC filing. VanEck also filed Form 8-A — a registration step that permits issuers to trade on an exchange once the product has been approved.

Meanwhile, Hashdex proposed a unique ETF combining spot Bitcoin and Ethereum in a filing on June 18, reflecting a strategic diversification in response to market demand. The proposed ETF would balance the crypto assets according to their market capitalizations, which, as of May 27, was 70.54% Bitcoin and 29.46% Ethereum.

Update: A dual Ethereum and #Bitcoin ETF filing from @hashdex just dropped. It will be market cap weighted. This shouldn’t come as a surprise to anyone — it makes a lot of sense.

The final deadline for SEC approval should be sometime around the first week of March 2025 pic.twitter.com/5wB7ucvbgM

— James Seyffart (@JSeyff) June 18, 2024

Spot ETFs expected to drive up ETH price

Following the success of spot Bitcoin ETFs, the introduction of spot Ethereum ETFs is anticipated to attract substantial capital inflows, likely driving ETH prices higher. Galaxy Vice President of Research Charles Yu forecasts up to $7.5 billion flowing into Ethereum ETFs within the first five months post-approval, indicating strong demand from both institutional and retail investors.

K33 analysts Vetle Lunde and David Zimmerman stated in a July 2 report that the launch of spot Ethereum ETFs will outperform Bitcoin in the weeks following their introduction in the U.S.

Analysts at VanEck, which has applied to list a spot Ethereum ETF, have increased their 2030 price prediction for ETH to $22,000. VanEck attributed this revised forecast to the influence of Ethereum ETF news, advancements in scaling technology, and an analysis of on-chain data.

We’ve raised our 2030 ETH price target to $22K, influenced by ether ETF news, scaling progress, and our analysis of on-chain data. Additionally, we’ve examined how ETH and BTC perform in both traditional and crypto-only portfolios for optimal returns. @Matthew_Sigel @Patrick_Bush_VE…

— VanEck (@vaneck_us) June 5, 2024

Bitwise’s Chief Investment Officer Matt Hougan estimates that spot Ethereum ETFs could attract as much as $15 billion by the end of 2025, indicating a significant shift in capital towards Ethereum.

1/ Ethereum ETPs will attract $15 billion in net flows in their first 18 months on the market.

A thread on how I arrive at this estimate.

— Matt Hougan (@Matt_Hougan) June 26, 2024

Mads Eberhardt, a senior analyst at Steno Research, also predicts that spot Ethereum ETFs could see net inflows of $15 to $20 billion in the first 12 months, potentially elevating ETH prices to $6,500 by the end of 2024.

However, market sentiment remains mixed. Andrew Kang, a founder of the venture capital firm Mechanism Capital, warns that the launch of Ethereum ETFs could lead to a short-term price decline for ETH. According to Kang, Ethereum garners less institutional interest compared to Bitcoin.

https://t.co/On2KWjAlLx

— Andrew Kang (@Rewkang) June 23, 2024

Despite these apprehensions, the long-term outlook remains optimistic, with expectations that ETH prices could surpass Bitcoin following the ETF’s launch.

Ethereum’s Network Activity

Ethereum has experienced a slight uptick in network activity over the past month.

Daily active addresses on Ethereum rose from 384.2k on June 1 to 466.6k on June 30. On June 22, the number of active Ethereum addresses surged from approximately 372.8k to over 610.8k, marking a 64% increase.

Aside from speculation regarding the spot Ethereum ETFs, there appeared to be no significant events on June 22. The only relevant factor may be the notably low gas fees on the Ethereum blockchain that day and throughout June (discussed below), which could explain the rise in daily active addresses during the month.

The number of daily active addresses on Ethereum peaked at 610.8k on June 22, a year-to-date high. Data source: Artemis

However, in contrast to the increase in daily active addresses, the creation of new addresses on the Ethereum network in June fell by 14.8% to 3.26 million.

The number of new addresses on Ethereum over the last 12 months. Source: The Block

The Ethereum network also recorded a slight 2% decline in daily transactions in June, dropping from 35.84 million in May to 35.05 million in June. Nevertheless, transaction numbers have generally remained stable over the past three months.

In June 2024, the number of transactions on Ethereum reached 35.05 million. Source: The Block

Despite a strong start to June, there was a notable decrease in Ethereum’s total value locked (TVL) during the month. On June 6, Ethereum’s TVL peaked at $66.9 billion, but it steadily declined to $58.3 billion by June 30, marking a 13% decrease over 25 days.

Ethereum TVL in May and June 2024. Data source: Artemis

Investors move ETH off exchanges

Data from CryptoQuant indicates a significant reduction in the amount of ETH held on cryptocurrency exchanges. As of June 30, exchange balances reached a four-year low of 16.6 million ETH, surpassing the previous low recorded in July 2021.

ETH reserve on exchanges in May and June 2024. Source: CryptoQuant

This trend of ETH outflows coincides with a rise in the altcoin’s price, suggesting diminished selling pressure and a potential shift in investor behavior. It may indicate a preference for holding ETH for the long term, with users opting to store their tokens in private wallets or dApps.

CryptoQuant data further reveals a steady increase in staked ETH on the Ethereum Beacon Chain. By June 30, the total staked ETH reached 33.3 million, nearly double the amount held on exchanges.

Ethereum total value staked (May-June 2024). Source: CryptoQuant

This growth is significant, particularly following the Ethereum Shanghai upgrade in March 2023. This update enabled users to withdraw their staked ETH if desired by removing the previous requirement that locked the tokens. Despite this, data indicates that most users have opted not to withdraw their tokens. This likely reflects the benefits of staking—such as earning rewards and contributing to network stability—which may outweigh the immediate ability to sell.

Ethereum supply continues to grow

One of the most significant developments in recent months has been the ongoing inflation of Ethereum supply, with over 112,000 ETH added to the total supply since April 14, according to ultrasound.money.

This prolonged inflationary trend is primarily attributed to the Dencun upgrade implemented on March 13. This upgrade included a series of nine Ethereum Improvement Proposals (EIPs), with EIP-4844 appearing to be the main contributor to the current inflation.

While EIP-4844 has greatly reduced transaction costs on Layer 2 networks like Arbitrum and Optimism, it has also led to a significant decrease in the total amount of ETH burned on the Ethereum mainnet.

Ethereum transaction fees drop to multi-year lows

The cost of executing transactions on the Ethereum network has fallen to its lowest level in years. Gas prices, which dictate transaction fees, have dropped below $3. On June 30, the average gas price on Ethereum was $2.41.

Average transaction fee on Ethereum (7DMA) in 2024. Source: The Block

The decline in gas fees is attributed to a shift in activity from Ethereum’s mainnet to its Layer 2 networks, a result of the March Dencun upgrade. Layer-2 networks are designed to process transactions more efficiently than the mainnet, potentially resulting in lower fees.

1-2 gwei gas fee! I don’t think I’ve seen it before in my entire 7 years in this space. pic.twitter.com/9VFa86XOql

— unnawut (@unnawut) June 23, 2024

Ethereum Ecosystem Updates

June 2024 was marked by mixed signals for the Ethereum ecosystem. While advancements in scalability and user adoption were acknowledged, concerns regarding governance and regulatory challenges surfaced.

EIP-7732 for faster Ethereum

Ethereum developers introduced a new Ethereum Improvement Proposal, EIP-7732, aimed at revamping the block validation process to enhance blockchain speed. The proposal seeks to bolster the blockchain’s security and performance by separating block validation into two distinct processes: consensus and execution.

EIP-7732 addresses the growing demand for efficiency on the Ethereum blockchain and aligns with Ethereum co-founder Vitalik Buterin’s advocacy for quicker transaction confirmation times.

Governance concerns

A report by Galaxy Digital on June 3 raised alarms about Ethereum’s decentralized governance. The report suggests that key stakeholders wield considerable influence through off-chain voting channels, raising questions about the actual level of decentralization in Ethereum’s decision-making process.

According to the report, the groups involved in the off-chain processes include client teams, validator node operators, the Ethereum Foundation, and decentralized application developers.

SEC investigation closure

On June 18, Ethereum ecosystem developer Consensys announced that the SEC had concluded its investigation into whether Ethereum could be classified as a security and Consensys’ involvement in ETH sales. This announcement followed a legal battle initiated by Consensys in April after receiving a Wells Notice from the SEC, indicating potential enforcement action against its MetaMask wallet for possible securities law violations.

ETHEREUM SURVIVES THE SEC.

Today we’re pleased to announce a significant victory for Ethereum developers, technology providers, and industry participants: the Enforcement Division of the SEC has notified us that it is closing its investigation into Ethereum 2.0.

This means that the SEC…