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Ethereum's Price Could Drop 30% Post-Spot ETF Launch, Says Crypto VC

Ethereum's price may drop 30% post-spot ETF launch, predicts Mechanism Capital's Andrew Kang, citing limited institutional interest and minimal ETF inflows
June 24, 2024

Ethereum's price may see a significant drop following the launch of spot Ether exchange-traded funds (ETFs), warns Andrew Kang, co-founder and partner at crypto-focused venture capital firm Mechanism Capital. Kang's prediction sees Ether potentially falling to $2,400 from its current level of $3,410, marking a nearly 30% decline.

In a recent post on X, Kang elaborated on his bearish outlook, contrasting Ether with Bitcoin. He noted that Ether has not garnered the same level of institutional interest as Bitcoin, and there are limited incentives to convert spot Ether into ETFs. Additionally, Ethereum's network cash flows have been lackluster.

Kang stated, "How much upside would an ETH ETF provide? I would argue not much," predicting Ether’s price could range between $2,400 and $3,000 after the ETF launch. This forecast comes despite Ether's previous highs, which saw it surpass $4,000 earlier in the year.

Kang expects the inflows to spot Ether ETFs to be minimal compared to spot Bitcoin ETFs. He estimates that spot Ether ETFs will attract only 15% of the flows that spot Bitcoin ETFs have seen, based on Bloomberg ETF analysts' estimates. In the first six months, spot Bitcoin ETFs saw about $5 billion in new funds. Extrapolating this to Ethereum, Kang predicts around $840 million in "true" inflows for spot Ether ETFs during the same period.

Kang also commented on the overinflated expectations of crypto enthusiasts, suggesting they are disconnected from traditional financial investors' preferences. However, not everyone shares Kang’s pessimism. Industry analyst Patrick Scott, known as Dynamo DeFi, believes that spot Ether ETFs might mirror the performance of spot Bitcoin ETFs, although he does not foresee Ether’s price doubling. Meanwhile, asset management firm VanEck is optimistic, projecting that spot Ether ETFs could help drive Ether's price to $22,000 by 2030.

Despite Ethereum’s potential as a decentralized financial settlement layer, a world computer, or a Web3 app store, Kang argues that these selling points are a "hard sell" given the current data. He pointed out that Ethereum's promising future as a cash flow "machine" was more plausible during the height of decentralized finance and the last non-fungible token cycle. Now, with lower fees and other challenges, Ethereum may appear overpriced.

Kang also highlighted the impact of the surprise approval of spot Ether ETFs, which gives issuers less time to market to institutional investors. He noted that the absence of staking options in the proposed spot Ether ETFs could further deter investors.

While Kang acknowledged that financial giants like BlackRock are making moves in Ethereum’s real-world asset tokenization space, he remains uncertain about the impact on Ether’s price. He speculates that the ETH/BTC price ratio could slide from its current 0.054 to as low as 0.035 over the next year. However, he also noted that a Bitcoin price rally to $100,000 in the next six to nine months could potentially "drag" Ether to a new all-time high.

Kang's forecast provides a sobering perspective on the potential impact of spot Ether ETFs on Ethereum's price, contrasting sharply with more optimistic outlooks in the industry. As the market prepares for these new financial products, the true effect on Ether’s valuation remains to be seen.

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