Despite encountering recent obstacles affecting the wider cryptocurrency industry, Ethereum [ETH] continues to assert its presence as a formidable player in the market.
Market analysts are currently closely monitoring the actions taken by the Federal Reserve, as the Fed has withdrawn a substantial $161 billion from the markets.
This development was underscored by the increase in the Treasury General Account from $714 billion to $875 billion, following the payment of corporate taxes.
With the Fed persisting in divesting positions in risk-on assets, the impact on market liquidity has been noticeable.
The Reverse Repo program is expected to kick off its reduction of liquidity this week and run through until September 30th.
These unfolding events have the potential to influence Ethereum’s price dynamics and its ETFs in response to the shifting levels of liquidity in the market.
Consequences of Liquidity Constriction on ETH Price and Its ETFs
The price movements of Ethereum are significantly swayed by the liquidity measures initiated by the Federal Reserve, especially in relation to the ETH/USDT pair.
At the current price of $2,298, ETH has been following a downtrend since March 2024, characterized by substantial price fluctuations observed in August.
Breaking out of a descending trend channel, ETH is currently oscillating around the $2,300 mark.
Maintaining a position above this crucial price zone could shield ETH from the adverse impacts of the Fed’s liquidity shrinkage and potentially trigger a price reversal.
Conversely, a dip below $2,300 with sustained trading at that level could drive prices further down under the pressure of liquidity constraints.
Encouragingly, the Chaikin Money Flow (CMF) indicator is displaying a reading of 0.09, indicative of accumulation and buying force at play.
Moreover, the Relative Strength Index (RSI) has recently crossed above its 14-day moving average, hinting at a prospective bullish momentum.
While these technical signals hold promise for a potential price rebound, the liquidity crunch still looms as a factor that could exert downward pressure on ETH before any upward movement materializes.
In parallel, Ethereum-related ETFs have witnessed significant capital outflows, even amid the introduction of Ethereum spot ETFs facilitating capital inflows into ETH assets.
The Fed’s liquidity reduction could exacerbate this trend by constraining the available resources for investment in assets like Ethereum ETFs. The past week saw net outflows of $25.5M in ETH ETFs.
The Grayscale Mini ETF (ETH) recorded $2.8M in inflows, contrasting with significant outflows of $17.9M experienced by the Grayscale ETF (ETHE), reflective of a shift in market sentiment.
These movements culminated in an overall negative net flow of -$15.1M, as indicated by the most recent data release.
Recent Large-Scale Selling Activity
Recently, a long-standing Ethereum whale has been surreptitiously offloading substantial amounts of ETH.
The whale divested 2,364 ETH, equivalent to $5.44 million USDT at an average price of $2,302, spread across 27 transactions. Despite this recent selling spree, the whale still retains 14,272 WETH, valued around $33 million.
This whale divestment could be in response to the prevailing bearish sentiment stemming from the Fed’s liquidity shrinkage, with the pace of selling potentially moderating if market conditions show signs of improvement.
Ethereum’s price trajectory might face further downturns due to the impacts of the Fed’s liquidity squeeze, but technical cues leave room for the potential of a reversal.
Nevertheless, the movements in ETH ETFs and whale activities signal a note of caution, suggesting the market might require increased liquidity support to sustain upward price movements.