Why are investors cautious as interest in Ethereum ETFs increases?

The ETH price remained weak at the $2,400 level. With funding rates turning negative, investors are moving away from leveraged long positions, and the $3,000 target is at risk. Despite the inflows into ETFs, Ether has lost about 4% in value.

Negative funding rates and options data indicate that the likelihood of ETH exhibiting strong performance in the short term is low.

Ether (ETH) experienced a 4% decline over the past seven days, while the total value of the cryptocurrency market increased by 1%. This situation raises questions about the likelihood of ETH reaching the $4,000 level. According to data from derivative markets, demand for leveraged long positions has decreased. This trend holds true even though Bitcoin is trading just 4% below its all-time high.

The pullback of ETH from the $2,800 resistance on June 11 did not diminish interest in ETFs. On the contrary, there was an inflow of $322 million into these products in the following two weeks. This movement suggests that investors are pricing in potential regulations that will increase the benefits and accessibility of ETFs.

The U.S. Securities and Exchange Commission (SEC) is evaluating requests for creation and redemption transactions of ETFs 'with the same type of asset' (in-kind). Additionally, it is looking into whether these ETFs could offer local staking functionality to earn rewards in ETH. According to Bloomberg analyst James Seyffart, the SEC is expected to have a interim decision on this by the end of August.

The declining demand for leverage in ETH signals that investors may turn to upcoming altcoin ETFs. Especially altcoins such as Solana (SOL), Litecoin (LTC), Polkadot (DOT), and XRP are also applying for ETF approval. Bloomberg analyst Eric Balchunas estimates that the likelihood of these ETFs being approved by 2025 is 90% or higher.

Generally, bulls pay funds to maintain leveraged positions; in bear markets, this rate reverses. Although the current annualized -2% funding rate is not very high, it indicates that investors are not showing strong confidence at the price level of $2,400 for ETH. Moreover, this rate represents a significant decrease from the positive 10% funding rate just two weeks ago.

Investors need to monitor the ETH options market to exclude anomalies in perpetual futures. Options contracts are popular among retail investors because they closely reflect the spot market. If whales and market makers were concerned about a sharp decline in prices, the delta skew would rise above 5%. However, currently, the ETH options delta skew is in a neutral range, fluctuating between -5% and 5%. While this level represents an improvement from -7% two weeks ago, it indicates that there is no significant hedge demand. Therefore, the declining demand in futures may not generally be considered a strong bearish signal.

Ethereum supporters believe that the interest of institutional investors in ETH will increase. Users like ripdoteth on Twitter attribute Ethereum's competitive advantage to its second-layer 'fully customizable modular architecture', 'access to the deepest liquidity', and security features. However, despite all these advantages, the ETH price is still hovering around 50% below its all-time high, and thus a strong rise is not expected in the short term.

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