Author: goodalexander
Compiled by: TechFlow
I am bullish on Ethereum. I do not think current expectations for ETFs reflect underlying demand from family offices and Blackrock ESG/European clients looking to expand data centers globally to manage carbon footprint issues arising from AI.
Current ETH/BTC chart
The above chart shows the long-term trend of ETHBTC
ETH/BTC has been in a state of heavy selling since the ICO craze in 2021. At that time, the low of ETHBTC was about 0.052.
ETH/BTC attempted to break out of the descending trend channel on the news of the ETF launch but failed as IBIT continued to see accelerated inflows while Trump and other prominent politicians announced their support for Bitcoin.
If ETH/BTC breaks above 0.056, analysts will likely interpret the success of the launch based on price action rather than focusing on “flow” numbers because what people actually care about is price.
There is an article in Bloomberg that mentions that ETH/BTC could “jump 90%” after ETF approval. If true, this would take ETHBTC past the 2021 ICO highs. I am skeptical of this claim that relies on ETH’s sensitivity to BTC, but I do think ETHBTC can reach 0.07.
At current BTC prices, this equates to roughly $4,600 in ETH/USD.
Expectations and traffic
Regarding flow expectations. Citi expects $6 billion, Wintermute expects $4 billion, and Bloomberg expects 10-15% of Bitcoin flow. Assuming $25 billion in Bitcoin flow in the first year, the upper limit is $3.75 billion, but analysts currently interpret the flow level as $2 billion. I think it is safe to say that $4 billion is the target for annual inflow expectations.
IBIT, the Ishares Bitcoin ETF currently has $22.7 billion in assets - compared to the Ishares Silver ETF which has only $13.2 billion despite only being around for half a year. The silver market is worth $1.7 trillion, while the Bitcoin market is worth $1.3 trillion, despite Bitcoin having more liquidity, interest, and assets under management. If Judas knew about the Bitcoin Standard, we would be trading at a much higher price. To be honest, Bitcoin's global liquidity makes it more liquid than the New Zealand dollar (a G10 currency), which greatly increases its properties as a currency. Given these factors, it is quite reasonable for Bitcoin to surpass silver, which would give us a ~30-40% upside from current prices.
People have been bullish since May, following the approval of the ETH ETF
IBIT proves the importance of crypto ETFs, but people have been bullish on ETHE since May and are tired of the aggressive rise in SOLETH transactions, which generally generates more fees than the ETH chain.
But the average investor doesn’t know about SOLETH, and the question is how pure ETH interest will perform compared to a BTC ETF.
According to Google Trends, we can expect to reach 20-30% of the total interest.
The chart above shows recent Google Trends, and I think we can realistically reach 20-30% of total interest (or even higher if ETH really rises, as we saw when it was approved in May).
Internal data tracking (network traffic, related terms)
As Ethereum (ETH) has more use cases, its associated "narrative" potential is also greater. Internal data tracking shows that the reasonable range of ETH penetration on the general investor side is between 20-60%, which mainly depends on the use case.
Let’s dig deeper to see why this number is so high — there are many applications built on Ethereum. During the NFT bull run, ETHBTC’s data tracking reached 60%.
Finally, a quick simulation was performed using the Claude API to estimate the market capitalization ratio of Ethereum to Bitcoin.
The answer converges to 45% very consistently over 10 runs. This would be a high-end estimate. Note that the current ETHBTC market cap is ~32%.
So basically - I think IBIT could be $30 billion by the end of the year. The low end estimate for ETH is 20%, which would put its market cap at $6 billion, which is Citi's "aggressive" high end estimate. So even from the average investor data tracking, I think expectations are low enough that ETH is still investable even if it performs poorly the first few days - which brings us to
Complicating factors
Trump to Speak at Bitcoin Conference
Trump will be speaking at the Bitcoin conference along with Snowden, Russell Brand, Cathie Wood, Michael Saylor and others. Even if these people are not directly associated with Trump, some of them may make institutional investors uneasy. Many Republican senators will also speak at the Bitcoin conference.
So - on one hand, this conference could reduce interest in ETH, which is bearish in the short term.
But on the positive side, this conference could turn Bitcoin into a right-wing asset - which is bullish for ETH from a fund flow perspective.
The Rise of Harris and the Politicization of Bitcoin
Since Harris “took over” Biden’s affairs, Trump’s odds in the market have fallen, with Predictit trading from a high of 70 to a current 59, which is also one of Trump’s highest levels in the odds market in history.
The New York Times on Kamala Harris: "When Ms. Harris ran for president in 2020, her climate plan called for $10 trillion in additional spending over a decade and for putting a price on carbon, with the proceeds going directly back to households. Economists say a carbon tax is the most effective way to get industry to pollute less."
She also supports a ban on fracking, a technique Biden opposes, in which water and chemicals are injected underground at high pressure to extract hard-to-reach oil or gas.
Logically extrapolating, Harris has a significant impact on both deficit expansion and energy consumption reduction, which is very detrimental to the Bitcoin mining business.
Institutional Energy Narratives
This provides the basis for the key bullish case for Ethereum. Bitcoin is very power hungry. If fracking were banned, as Harris advocates (and Biden does not support), this could put a huge strain on the energy grid. While you can make an argument for using renewable energy, most institutions don’t agree. Remember, it’s not the facts that matter, it’s the perceptions that matter.
Goldman Sachs predicts AI will dramatically increase electricity demand
Goldman Sachs’ chart predicts trillions of dollars in capital expenditures, with $1 trillion needed in Europe alone to deal with electricity costs.
Add to that the stagnation of Bitcoin hashrate growth quarter-over-quarter after the halving and you have a nice narrative. Miners are essentially shorting electricity prices, which could make Bitcoin less secure over time and could also force them to sell their holdings to pay for increasing electricity costs. This also explains their expansion into the AI data center business.
Bitcoin hash rate 84-day moving average percentage change (note - hash rate has started to recover recently, which is good for BTC)
Meanwhile, the supply of Ethereum has decreased slightly since Ethereum merged to Proof of Stake, as shown in the chart below.
This chart is key to demonstrating that Ethereum Proof of Stake can generate a “scarce” asset without consuming electricity. Ideally, we would like this chart to trend downwards rather than remain flat, but this is the reality.
This is not a new idea, and Soros fund manager Dawn Fitpatrick has also expressed this view.
Finally, it is worth pointing out that Blackrock has been talking about climate issues for the past 3 years. It has a large European asset base.
in conclusion
I think over the next few weeks the media will heavily promote Kamala Harris and increasingly focus on her $10 trillion climate plan, her call to ban fracking, and the focus on AI and its associated electricity costs. Because these narratives will influence institutional mindset, and Blackrock is well positioned from a marketing perspective - I think ETH will become the "Democratic crypto". ETH will receive inflows from "climate-sensitive" institutions - many of which are hostile to Donald Trump, but also see the political inevitability of large-scale climate investments requiring quantitative easing and currency debasement.
Furthermore, as ETFs inherently reduce the risk of custodying assets, these large institutional flows are most likely to occur. The above is my opinion (disclosure: I hold ETH and this is not investment advice).
