The pressure on Ethereum amidst the impact of Federal Reserve liquidity drain on ETFs
Ethereum, a prominent player in the cryptocurrency market, is currently navigating through challenges that are affecting the broader crypto landscape.
Observers are closely watching the Federal Reserve’s maneuvers, as the Fed has withdrawn a significant amount of $161 billion from the markets.
This action is evident in the increase of the Treasury General Account from $714 billion to $875 billion after corporate tax payments were made.
The Fed’s ongoing liquidation of risk-on assets has led to a notable impact on market liquidity.
Effects of liquidity depletion on ETH price and its ETFs
The Federal Reserve’s liquidity measures have a substantial influence on Ethereum’s price dynamics, especially concerning the ETH/USDT pair.
Presently trading at $2,298, ETH has been on a downward trajectory since March 2024, witnessing significant price fluctuations in August.
Breaking out of a descending trend channel, ETH is currently hovering around the $2,300 mark.
If Ethereum manages to sustain levels above this crucial price range, it might circumvent the adverse impacts of the Fed’s liquidity reduction and could potentially trigger a price reversal.
Nevertheless, a dip below $2,300 could expose ETH to downward pressure resulting from the liquidity squeeze.
There is a positive sign with the Chaikin Money Flow (CMF) showing an accumulation trend with a value of 0.09, indicating buying pressure.
Furthermore, the Relative Strength Index (RSI) has crossed above its 14-day moving average, hinting at potential bullish momentum.
While these technical signals hint at a probable price recovery, the liquidity constraints may initially exert downward pressure on ETH before any upward movement materializes.
Moreover, Ethereum-related ETFs have witnessed significant outflows despite the launch of Ethereum spot ETFs, enabling capital inflows into ETH assets.
The Fed’s liquidity contraction could exacerbate this trend by restricting funds available for investment in assets like Ethereum ETFs. In the recent week, ETH ETFs saw net outflows amounting to $25.5 million.
The Grayscale Mini ETF (ETH) attracted $2.8 million in inflows, whereas the Grayscale ETF (ETHE) faced substantial outflows, losing $17.9 million, reflecting shifting market sentiments.
These metrics contributed to an overall negative net flow of -$15.1 million, as per the latest data.
Signs of a historic whale’s selling activity
Notably, a long-standing Ethereum whale has gradually been selling off considerable amounts of ETH recently.
With 27 transactions spread out, the whale sold 2,364 ETH, totaling $5.44 million USDT at an average price of $2,302. Despite the sell-off, the whale still retains 14,272 WETH, valued at approximately $33 million.
The whale’s selling spree could be linked to the prevailing bearish sentiment affected by the Fed’s liquidity reduction, hinting that the selling pace might ease if market conditions improve.
Ethereum’s price may face additional downward pressure due to the Fed’s liquidity squeeze, although technical indicators are suggestive of a potential reversal.
However, caution is warranted with the movement of ETH ETFs and whale activities indicating a need for further liquidity support to sustain higher price levels.