Tech
Crypto VC predicts a 30% drop in Ethereum price after launching ETH spot EFTs
Andrew Kang, founder and partner of Mechanism Capital, a cryptocurrency-focused venture capital firm, warned of a potential Ethereum decline. Kang says Ether could drop to as low as $2,400 following the launch of Ethereum spot exchange traded funds (ETFs).
This advertised value represents a nearly 30% drop from Ether’s current trading price $3,410. This prediction marks a potentially significant drop, given the previous high of over $4,000 reached in March, when Bitcoin hit a new all-time high. Ether had also tested this level again a few days before the US SEC approved Ether ETFs.
Analysis of the impact of the Spot ETF on the price of Ethereum
Kang attributes its bearish outlook to several key factors. First, Ethereum has not attracted the same level of institutional interest as Bitcoin.
Secondly, there are limited incentives for investors who may want to convert their spot Ether into ETF form. Finally, the network’s cash flows have not been particularly impressive, impacting its overall valuation.
His question about how much upward movement the market would see from ETH ETFs shows his skepticism regarding their advantages. He added that the price range of Ethereum after the launch of the ETFs will be between $2,400 and $3,000.
Furthermore, in his comparative analysis, Kang suggests that Ether spot ETFs could only capture around 15% of the inflows experienced by Bitcoin spot ETFs.
According to Bloomberg ETF analysts James Seyffart and Eric Balchunas, Bitcoin ETF the flows were between 10 and 20%. Spot Bitcoin ETFs raised $5 billion in new funds during the first six months, excluding converted funds.
If this trend applies to Ethereum, Kang predicts that Ether ETFs could see around $840 million in “real” inflows over a similar period. He believes that the crypto community’s high expectations are out of sync with the real preferences of traditional financial allocators.
Not all analysts, however, share Kang’s pessimistic view. Patrick Scott, known as Dynamo DeFi, recently told Cointelegraph Magazine that he expects the price of Ether to move similarly to that of spot Bitcoin ETFs. However, he acknowledged that the price of Ether may not double.
On a more optimistic note, says asset manager VanEck Spot ETF on Ether could help push Ethereum’s price to $22,000 by 2030.
Kang also discusses the investment appeal of Ethereum, highlighting its potential as a world computer, decentralized financial settlement layer, or Web3 app store. However, he argues that current data makes it a challenging investment proposition.
He also said that Ethereum’s potential as a cash flow machine looked more promising when DeFi and NFTs they were raising rates. This trend has not continued, leading him to compare Ethereum to an overpriced tech stock.
Ether Spot ETFs May Not Fly
Additionally, Kang criticized current valuation metrics of a 300x price-to-sales ratio, 30-day annualized revenue of $1.5 billion, and a negative earnings-to-price ratio after inflation. She wonders how analysts justify this price to the head of macro funds or the family office.
According to Kang, the surprise nature of the approval means that issuers now have less time to promote these ETFs to institutional investors. While some companies like VanEck and Bitwise have already launched Ethereum-themed advertisements, the limited time available could impact broader institutional deployment.
Kang also highlighted that the exclusion of staking from the proposed spot ETH ETFs could be a limiting factor. No staking may discourage investors who are considering converting their spot Ether holdings into ETF form.
While Kang acknowledges that BlackRock and others have initiated tokenization plans on Ethereum, he doubts these moves will have a significant impact on ETH’s price.
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile and high-risk asset class.
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