Cryptocurrency Markets Slip Post-Spot Ether ETF Launch While Stablecoins Show Strength

The cryptocurrency market has faced significant challenges since the launch of spot ether (ETH) exchange-traded funds (ETFs) in the U.S. on July 23, according to a recent research report from Citi. The bank highlighted that while other risk assets have struggled during this period, cryptocurrencies have particularly underperformed, especially when considering volatility-adjusted returns since the post-nonfarm payrolls (NFP) rebound.

The NFP, a key U.S. employment report released monthly, usually provides a pulse on the economic outlook, influencing market sentiment across various asset classes. However, despite some broader market resilience following the latest NFP data, the report notes that “crypto demand has dried up in recent weeks.” Both spot bitcoin (BTC) and ether ETFs have experienced net outflows over the past month, indicating waning investor interest in these digital assets.

The diminished demand is further evidenced by futures funding rates, which briefly turned negative in August—a sign that bearish sentiment is prevailing among traders. Citi’s analysis suggests that ETF flows may continue to underwhelm until there is greater clarity on whether the U.S. economy will experience a “soft landing” or a “hard landing” as it navigates through its current economic challenges.

Despite the overall market weakness, stablecoins have shown resilience. While cryptocurrencies like bitcoin and ether have seen declines, the supply of stablecoins—such as Circle’s USDC, Tether’s USDT, and XMG’s USXM—has continued to grow. Stablecoins, typically pegged to the U.S. dollar or other stable assets and even gold, have bucked the negative trend, offering a safer haven for investors amid the market correction in August.

As the market awaits more transparency on the U.S. economic trajectory, the ongoing divergence between traditional cryptocurrencies and stablecoins highlights the complex dynamics at play in the digital asset space. With the future of crypto ETFs uncertain, all eyes are on how these trends will evolve in the coming months.

Terry Jones
Digital Assets Desk