Ethereum July 2024 Update

Market Data

Market Commentary

In July, markets rose as inflation declined but still remained above the Federal Reserve’s 2% target rate. Recent economic data suggests that the period of high inflation may be coming to an end. The Personal Consumption Expenditures (PCE) Price Index, a key measure of inflation, shows a significant decline in both overall and core inflation rates. For the 12 months ending in June 2024, overall inflation stands at 2.5% while core inflation (excluding food and energy) is at 2.6%. 

Consumer sentiment remains surprisingly steady despite the economic fluctuations. While there has been some improvement in household finances, consumer confidence has not fully rebounded. This hesitancy in spending could be due to lingering economic uncertainty and other factors such as job insecurity and geopolitical instability. However, it did help that GDP last quarter grew by 2.8% (vs 1.4% in Q1), highlighting the economy's resilience. This surge was driven by strong consumer spending and business inventory stocking.  

The Federal Reserve left the Fed Funds rate unchanged at a two-decade high of 5.25% to 5.5% but hinted at potential rate cuts as early as September. This decision reflects the easing of inflation and the impact of high borrowing costs on the labor market. Fed Chair Jerome Powell indicated that if economic data continues to show progress on inflation coupled with a stable labor market, a rate reduction could be considered. Recent data shows inflation nearing the Fed's target and a softening labor market, with the unemployment rate slightly up (4.1%). Financial markets are now anticipating a rate cut in September with an 86% estimated chance (up from 61% last month). There are also some expectations for one or two more rate cuts by year-end but this remains to be seen.  

The S&P 500 hit an all-time high of 5,669 and ended July at 5,522, 1% higher than the end of June; similarly, the NASDAQ also hit an all-time high and rose 1.5% MoM, continuing its upward trend for 2024. As not to be left out, gold also saw a new all-time high of $2,502. While a positive month for stock and gold prices, the aforementioned macro factors did not help ETH as its price declined 7% from $3.4k to $3.1k. This marked the second month in a row of declining prices for ETH and this was despite the recently launched US spot ETH ETF. That being said, net inflows over the last 7 days of trading have been ~$500M with $2B of outflows (20% of AUM) from Grayscale’s ETHE product and $1.5B of inflows from the remaining eight. Blackrock’s ETHA ETF alone has accumulated over 150K ETH - that’s more than there is on ZkSync (~141K). Outflows from Grayscale may start to subside soon, the last three trading days saw the lowest outflows yet and we could see more consistent net positive inflows by the middle of August. With a deflationary supply and the majority of ETH not on exchanges (as discussed later), flows at the top end of the range could have a material impact on the price of ETH.