Ethereum's Q2 rally slows as demand wanes despite ETF inflows

Ethereum's [ETH] rally in the second quarter of the year has shown signs of slowing down after a significant surge from $1,400 to $2,800 in April and May. The strong recovery in early Q2 was driven by aggressive demand from institutions, with U.S. Spot ETH ETF net inflows reaching $564 million in May. In June, these inflows continued to rise, surpassing $1 billion with only three days of trading left in the month. However, speculative interest remained subdued as ETH fluctuated between $2,800 and $2,300.

During the upswing in Q2, Open Interest (OI) in the derivatives market increased from $17 billion to $41 billion, pushing ETH's price from $1,400 to $2,800. This indicated a 2.4x demand spike. However, since mid-June, demand has waned as the OI declined by $10 billion from $41 billion to $31 billion. Consequently, ETH's price dipped from $2,800 to $2,100, before briefly reclaiming $2,400. This contraction in demand defied the massive inflows seen in ETH ETFs, with ETF products attracting $232 million this week alone.

The options market also reflected a cautious sentiment, particularly in the mid-term. The 25 Delta Skew indicator showed that the 1-week and 1-month tenors jumped to 6% and 15% earlier in the week, indicating strong demand for short-dated calls (bullish bets) and hinting at an 18% relief bounce from $2,100 to $2,500. However, the skew dropped to 1% and 3% for 1-week and 1-month tenors, suggesting that the recent buying euphoria may have cleared. Conversely, the 3-month tenor turned negative and slipped nearly to -2%, indicating a premium for puts (bearish sentiment) in Q3.

Despite the mixed signals, the SOPR (Spent Output Profit Ratio) indicator suggests that ETH is in a buy zone. This indicator tracks holders' profitability, with readings above 1.0 marking high unrealized profits and local peaks, and readings below 1 marking bottoms and attractive buy zones. At the time of reporting, the SOPR was at a neutral level of 1, and an extra dip could offer a great bargain if history repeats itself.

In summary, while ETH ETF inflows have been on the rise, indicating growing interest in Ethereum among investors, futures data suggests that traders are not fully convinced by the rally. This discrepancy highlights a cautious sentiment among traders, who may be waiting for more confirmation before committing to the rally. The mixed signals in the market could be attributed to various factors, and investors should remain cautious and monitor the market for further developments.