Ether liquidity on US exchanges has fallen by as much as 40% since the first Ethereum spot funds entered the market on July 23, 2024.

It’s a move that’s been expected from traders and analysts who previously viewed ETFs as a way to improve the market. liquidity and thus stabilize prices.

Instead, something completely different happened: the average market depth of 5% for ETH pairs fell to around $14 million. Meanwhile, offshore exchanges are seeing a similar drop in liquidity of around $10 million.

Ether liquidity down

After launching nine ETFs in July Ether liquidity has plummeted 20% in US markets and 19% in offshore locations.

The drop in liquidity is one of the things that is causing concern and, more importantly, signals greater sensitivity to gigantic orders. With low market depth, it follows that even compact transactions can result in drastic price movements.

Jacob Joseph, a research analyst at CCData, said liquidity is still better than it was at the start of the year, but has actually fallen by almost 45% since its peak in June. The main culprits are penniless market conditions and seasonal effects, as the summer months will see less trading activity.

Market Dynamics and ETF Performance

Their introduction was expected to boost liquidity, similar to what happened with the Bitcoin ETFs introduced earlier this year. However Ether the market didn’t react that well.

In the period since their introduction Ether ETFs saw cumulative outflows of over $500 million. This contributed to an overall decline in liquidity, making markets even more volatile.

Surprisingly, the ETFs had their own performance. For example, Grayscale’s ETHE ETF saw outflows of $10.7 million, while BlackRock’s ETHA ETF saw inflows of $4.7 million.

Such mixed results indicate that Ether markets have not yet recovered from the tough period, and the investments reflect investors’ reluctance to commit capital in times of uncertainty.

Consequences for traders and investors

The drop in liquidity is a challenge for both traders and investors. In low liquidity states, slippage is much higher and the strike price is higher.

A substantial problem is that institutional investors like stable markets and good liquidity. If these substantial players stop operating completely, it could create a vicious cycle where liquidity becomes even lower and prices fall even further.

Ether is currently trading around $2,258, down more than 4% in the past 24 hours. The broader cryptocurrency market is also under pressure: all major altcoins, including Solana and Ripple, are in the red, posting losses ranging from 2% to 4%.

Going forward, market participants will find themselves in a situation where the expected benefits of the introduction of an ETF have not materialized for Ether. With the Federal Reserve potentially cutting interest rates, the market’s attention in the future may turn to how these changes will impact liquidity and trading activity in the coming months.

Featured image from Getty Images, chart from TradingView