ETH Price Hits $3,700 Following ETF Approval Prospects and DOJ Indictment

Key Insights:

• Ether’s 24.5% surge driven by probable spot Ethereum ETF approval, boosting investor confidence and inflows.
• DOJ indictment reduces security classification fears, reinforcing Ether’s decentralized nature and investor trust.
• Increased open interest and funding rates signal strong market confidence and bullish sentiment for Ether’s continued price rise.

Ether (ETH), the second-largest cryptocurrency by market capitalization, experienced a notable surge in price, climbing 22.1% within 24 hours to reach approximately $3,796 on May 21. This rise marks its highest level in two months and outperforms the broader cryptocurrency market, which saw gains of around 11%. The increase in Ether’s price is attributed to the rising chances of U.S. approval for a spot Ethereum exchange-traded fund (ETF) and a recent Department of Justice (DOJ) indictment that reduces the likelihood of ETH being classified as a security.

Reports indicate a probability that the U.S. Securities and Exchange Commission (SEC) will approve a spot Ethereum ETF. Bloomberg ETF analyst Eric Balchunas and research analyst James Seyffart raised their odds of approval from 25% to 75% following indications that the SEC has contacted cryptocurrency exchanges and potential ETF issuers to update their filings. Fidelity Investments, one of the ETF applicants, has amended its application by removing its ETH staking plans.

Update: @JSeyff and I are increasing our odds of spot Ether ETF approval to 75% (up from 25%), hearing chatter this afternoon that SEC could be doing a 180 on this (increasingly political issue), so now everyone scrambling (like us everyone else assumed they'd be denied). See… https://t.co/gcxgYHz3om

— Eric Balchunas (@EricBalchunas) May 20, 2024

Standard Chartered analyst Geoff Kendrick anticipates the SEC’s approval of the investment product within the week. This development could lead to substantial inflows of $15 billion to $45 billion in the first year, mirroring the Bitcoin market’s reaction ahead of its ETF approvals in January. The increased likelihood of ETF approval has boosted investor confidence in Ether, contributing to the price surge.

DOJ Indictment Influences Market Perception

The DOJ’s recent indictment, unsealed on May 15, also contributed to the upward movement of Ether’s price. The indictment accused two individuals of wire fraud and money laundering for manipulating the Ethereum blockchain. It emphasized that Ethereum is a decentralized blockchain that operates without a trusted intermediary and that no central actor controls the Ethereum network. Additionally, the court acknowledged the role of Ethereum smart contracts in facilitating transactions independently.

These statements have reassured investors, particularly after the SEC issued a Wells notice to Robinhood on May 4 for alleged securities violations related to crypto listings and custodian operations. Orlando Cosme, founder, and CEO of Lexproof, noted that the indictment challenges the regulators’ efforts to classify ETH as security, implying that no managerial or entrepreneurial efforts drive its value. This has further solidified investor confidence in Ether.

Rise in Open Interest and Funding Rates

Ether’s price rally coincides with an increase in its open interest (OI) and funding rates. On May 21, Ether Futures OI surged by over $3 billion to reach $14.68 billion. Simultaneously, the funding rate climbed to a one-month high of 0.567% per week. High OI typically indicates growing investor interest and confidence in an asset, suggesting that traders are positioning themselves for potential price movements.

A high funding rate signifies that more traders are betting on the price of Ether rising (long positions) rather than falling (short positions). This reflects a bullish sentiment among traders, who are willing to pay a premium to maintain their long positions. These factors collectively suggest strong market confidence in the continued rise of Ether’s price.

Technical Analysis and Market Sentiment

The current price level of around $3,778 confirms a breakout above the upper trendline of the falling wedge, indicating a significant bullish move. This breakout is supported by a substantial increase in trading volume, suggesting strong market participation. 

According to technical analysis principles, the target price following a falling wedge breakout is often estimated by measuring the maximum height of the wedge and projecting it from the breakout point. In this case, the height of the wedge is approximately $1,300. Adding this to the breakout point around $3,000 gives an estimated target of approximately $4,300.

BTC/USD 1-day price chart (Source: TradingView)

Further technical analysis indicates two potential target levels: the first around $4,120 and the second slightly higher. The Stochastic RSI indicator at the bottom of the chart shows that it has entered overbought territory, with both the %K and %D lines above the 80 level. 

Moreover, this suggests that the price may experience some short-term consolidation or minor pullbacks due to overbought conditions. However, overbought conditions in a strong uptrend often indicate sustained bullish momentum rather than immediate reversals.