The month of May saw a surprising development as the U.S. Securities and Exchange Commission approved a rule change paving the way for Ethereum exchange-traded funds (ETFs) to potentially launch soon. This unexpected U-turn from the SEC has been speculated to have political motivations and has significantly shifted market dynamics, with the ETH/BTC pair rebounding strongly. Beyond the Ethereum ETF news, May also saw the comeback of meme tokens on different chains, including the rise of "PolitiFi" and celebrity-backed meme coins. Overall, the market anticipates that the approval of Ethereum ETFs will attract more liquidity into the market, as seen from the BTC ETFs.

The Partial Approval of Ethereum ETFs

May came with a surprise in which the U.S. Securities and Exchange Commission (SEC) made a U-turn on the Ethereum exchange-trade funds (ETFs) applications. On 23 May 2024, the U.S. SEC approved a rule change, the 19b-4 document, allowing for Ethereum ETFs. While the ETFs still have to get the green-light on the S-1 document, the market expects it is just a matter of time for the final approval. Currently, the market anticipates that the trading could likely commence within a few weeks, by the end of June or early July.

The SEC's Unexpected U-Turn on Ethereum ETFs

Prior to the week of 23 May, market sentiment was leaning heavily towards the SEC disapproving the Ethereum ETFs. However, in a surprising turn of events, the SEC reversed its stance. This sudden shift has been speculated to stem from political motivations, with the Biden administration seeking to bolster support against Trump, who has been vocal in his support for cryptocurrencies.

A crucial factor in the evaluation of ETF approval is the classification of Ethereum as either a security or a commodity. This is why the staking feature of Ethereum adds complexity to this classification. Notably, most ETF issuers have removed plans to include staking within their ETFs. This adjustment could be a strategic move to influence the likelihood of approval, by aligning more closely with regulatory expectations.

How would the market play out?

Prior to the approval decision, four potential scenarios were identified regarding the Ethereum ETF applications. Ultimately, the fourth scenario — partial approval of the ETFs — materialized. Following this news, the ETH/BTC pair experienced a strong rebound, recovering from a yearly low of 0.045.

According to data from CryptoQuant, the amount of Ether balance on exchanges decreased by approximately 797,000 ETH between May 23 and June 2, valued at around $3.02 billion. This reduction in exchange balances indicates that investors are moving their Ether to self-custody wallets rather than potentially selling in the near-term, which is often interpreted as a bullish signal.

Shifting market dynamics between ETH and BTC

The market capitalization of Ethereum (ETH) relative to Bitcoin (BTC) is currently at levels comparable to those seen in March. Following the approval of the Bitcoin ETF, the market's focus began to gradually shift towards Ethereum, the second-largest cryptocurrency by market cap. In fact, a notable trend is the continuous shrinking of the trading volume difference between them.

We believe this shift is likely to sustain for the foreseeable future, as the approval of the Ethereum ETF is expected to attract more institutional and retail investors into the Ethereum market.

The Meme comeback and rotation

The partial approval of the Ethereum Spot ETF has significantly boosted market sentiment, leading to a notable comeback in meme tokens. This renewed interest began with Ethereum-based meme tokens, both new and old ones, and quickly spread across other blockchain networks. Solana's meme tokens and the Bitcoin ecosystem's Runes meme tokens have also seen a revival.

PolitiFi: The Intersection of Politics and Crypto

Recently, politics and elections have increasingly influenced the crypto space, giving rise to a new trend: PolitiFi. This phenomenon has been marked by the emergence of politically-themed meme tokens, particularly those centered around the two potential 2024 U.S. presidential candidates, Donald Trump and Joe Biden.

The Celebrity Coins

In addition to politically-themed meme tokens, May also witnessed the popularity of celebrity-backed meme coins. Notable among these are JENNER, launched by Caitlyn Jenner, and MOTHER, created by Iggy Azalea. Both tokens rapidly gained traction, amassing trading volumes exceeding $200 million within just a few days.

Runes crossing $1bn market cap set by Casey

Since the launch of the Runes Protocol on 20 April, its performance had initially been modest. However, the market cap of Runes has now exceeded the $1 billion mark set by its founder, Casey Rodarmor, who dramatically claimed he would commit seppuku if the market cap failed to reach this threshold within a month. Despite a slow start, the market cap of Runes has surged by over 50% since May 20, indicating a robust market rotation towards Runes meme coins.

Slowing inflow to Stablecoins

The overall market downtrend continued to slow the inflow of stablecoins in May, with an increase of only $18 million. However, there has not been any outflow of stablecoins yet, indicating that the underlying bull market sentiment has not fully reversed.

Furthermore, the cryptocurrency market has been recovering since late May, driven by a rebound in Bitcoin prices. Additionally, the inflow of stablecoins often lags behind market changes, so we anticipate that stablecoin inflows will likely improve in June, potentially rebounding in incremental steps as investor sentiment continues to recover.

Economic Data & Events to Watch in June 2024

Disclaimer

The content provided in this report is for illustrative purposes only and is intended to offer insights into the cryptocurrency market. It is not, and should not be interpreted as, investment advice or recommendations. The information contained herein is based on sources believed to be reliable; however, we do not guarantee its accuracy, completeness, or suitability for any purpose, and it should not be relied upon as such. Any opinions expressed reflect a judgment at the date of publication and are subject to change without notice. Readers are advised to conduct their own research and due diligence and, where appropriate, seek professional advice before making any investment decisions. The authors and publishers of this report accept no liability for any loss or damage arising from the use of the information provided.

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Macro Monthly Report (May)