Author: Brayden Lindrea, CoinTelegraph; Translated by: Wuzhu, Golden Finance
Andrew Kang, founder and partner at cryptocurrency-focused venture capital firm Mechanism Capital, said Ethereum prices could fall to $2,400 after the launch of a spot Ethereum exchange-traded fund.
Ethereum is currently trading at $3,410, according to CoinGecko. A drop to $2,400 would be a drop of nearly 30% from its current price.
Kang said in a June 23 post that unlike Bitcoin, Ethereum has attracted less institutional interest, there is little incentive to convert spot Ethereum into an ETF form, and the network cash flow is not very impressive.
“How much upside can an ETH ETF offer? I wouldn’t argue too much,” Kang said, adding:
“My expectation after the ETF launches is $2,400 to $3,000.”
Given that Ethereum prices had breached $4,000 when Bitcoin hit its all-time high in March, predictions are that the price could fall sharply. It almost reached the same level again just days before the U.S. Securities and Exchange Commission (SEC) approved an Ethereum ETF.
ETF flows will be small relative to spot Bitcoin
Kang believes that the spot Ethereum ETF attracts 15% of the traffic of the spot Bitcoin ETF - Bloomberg ETF analysts Eric Balchunas and James Seyffart estimate that this proportion is between 10-20%.
Kang noted that only $5 billion in new funds flowed into spot Bitcoin ETFs in the first six months, excluding funds converted from spot forms.
Extrapolating this data to Ethereum suggests that the spot Ethereum ETF saw “real” inflows of $840 million over the same time frame.
Source: Andrew Kang
“I think crypto investors’ expectations are over-inflated and out of touch with the real preferences of tradfi allocators,” Kang said.
“That means the ETF is way over priced.”
Not everyone agrees with Kang’s price prediction. Industry analyst Patrick Scott, better known as Dynamo DeFi, recently noted that he “expects similar directional movement in the performance of the Bitcoin spot ETF.” However, he does not expect Ethereum’s price to double.
Meanwhile, asset manager Van Eck believes a spot Ethereum ETF could help push Ethereum prices to $22,000 by 2030.
Tech stocks are overpriced
Kang believes that Ethereum’s pitch to investors as a distributed financial settlement layer, world computer, or Web3 app store may have some influence, but based on the data, it is a “hard sell.”
When decentralized finance and the last non-fungible (NFT) cycle pushed up fees, Ethereum’s future as a cash flow “machine” looked more promising. However, this did not last, and now Ethereum may look like another overpriced tech stock, he said:
“With $1.5 billion in annualized 30-day revenues and a P/E ratio of 300, and a negative P/E after inflation, how will analytics justify that price to their dad’s family office or macro fund boss?”
No hard sell
Kang said the unexpected approval also means issuers have less time to market to institutional investors, although Bitwise and VanEck are among the few Ethereum ETF applicants that have published Ethereum-themed ads and received approval.
Kang added that removing collateral from the proposed spot ether ETF could also discourage investors from converting spot ether into an ETF form.
Kang acknowledged that BlackRock and other financial institutions have begun to make moves in the real-world asset tokenization space on Ethereum, however, he is unsure how much of an impact this will have on the price of Ethereum.
Mechanism Capital executives believe that the ETH/BTC price ratio could drop to 0.035 from the current price of 0.054 in the next 12 months.
However, Kang believes that a rise in Bitcoin prices to $100,000 in the next six to nine months could “drag” Ethereum toward new all-time highs.