Crypto VC Founder Warns ETH Could Drop to $2,400 After Spot Ethereum ETFs Launch
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Highlights:
- Kang predicts Ethereum’s price could drop to $2,400 after the launch of spot Ethereum ETFs.
- Ether ETFs are expected to attract 15% of the flows seen by Bitcoin ETFs.
- Kang cites lower institutional interest and valuation concerns as challenges for Ethereum ETFs.
In a June 23 X post, Andrew Kang, a founder and partner at crypto-focused venture capital firm Mechanism Capital, said the price of Ethereum (ETH) could experience a significant drop to as low as $2,400 following the launch of spot Ethereum ETFs. At the time of writing, Ether was trading at $3,369. A decline to $2,400 would represent a drop of approximately 29% from its current price.
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— Andrew Kang (@Rewkang) June 23, 2024
Ethereum ETFs Expected to Capture 15% of Bitcoin ETF Flows
Kang expects spot Ether ETFs to attract about 15% of the flows compared to spot Bitcoin ETFs. This aligns with estimates by Bloomberg ETF analysts Eric Balchunas and James Seyffart, who suggest a range of 10-20% for spot Ether ETF flows.
Kang said only $5 billion in new funds, excluding converted spot funds, flowed into spot BTC ETFs during the first six months. Based on this data, it’s projected that spot Ether ETFs would attract approximately $840 million in “true” inflows over the same period. In March, Standard Chartered anticipated inflows could reach $45 billion within the first year of Ethereum ETF trading.
Challenges for Ethereum ETF Compared to Bitcoin
Kang gave several reasons why he expects the impact of an Ethereum ETF to be less significant than that of Bitcoin. He explained that Ethereum is seen more as a tech asset than a macro asset like Bitcoin. Kang also noted less institutional interest and buying pressure for Ethereum, partly because of its current valuation metrics, such as the price-earnings ratio. Moreover, there are limited incentives for converting spot Ethereum into ETF form.
Ethereum’s current position before any ETFs are launched contrasts with Bitcoin’s history. Ethereum has already surged fourfold from its lows, whereas Bitcoin had risen 2.75 times before its ETF launches. Therefore, Kang predicts ETH could trade between $3,000 and $3,800 before the ETF launch, but it might drop to between $2,400 and $3,000 afterward. He stated, “From the cycle bottom, BTC has returned 4.0x and ETH has returned a similar 4.0x. So how much upside an ETH ETF Provide? I would argue not much. After the ETF launch my expectation is $2,400 to $3,000.”
He also questioned Ethereum’s role as a decentralized financial settlement layer, a global computer, or a Web3 app store, arguing that the data does not back up these claims. Kang suggested that Ethereum’s future as a cash flow “machine” looked promising when fees were propelled by decentralized finance and the previous non-fungible token (NFT) cycle. However, momentum has not been sustained.
Staking Removal and Unexpected Approval May Diminish Investor Confidence
Kang mentioned that the unexpected approval also reduces the time for issuers to pitch to institutional investors. Bitwise and VanEck, among the approved Ethereum ETF applicants, have already launched Ethereum-themed ads. Moreover, removing staking from the proposed Ethereum ETFs may discourage investors from converting their spot Ether into ETFs.
the most important part of your thesis is highlighting how $ETH is used efficiently
why would anyone smart buy a spot eth etf with no yield instead of staking spot ethereum directly or with an institutional custodian
only dumb money would do that
— Ansem 🧸💵 (@blknoiz06) June 23, 2024
Ether ETF Issuers Amend S-1 Filings, Anticipate July Launch
On June 21, all eight spot Ethereum ETF applicants submitted S-1 amendments outlining fees and seed investments. Last month, the US SEC approved 19b-4 forms for these eight Ether ETFs. Issuers are now awaiting approval of their S-1 statements before trading can begin.
ETF analyst Balchunas predicted on June 14 that spot Ethereum ETFs would likely start trading on July 2. He suggested the SEC might speed up the process due to minimal comments on S-1 filings and the upcoming July 4 holiday. On June 21, Balchunas reaffirmed his prediction for a July 2 launch in an X post.
All spot eth ETF S-1 amendments are now IN…
Bitwise, Fidelity, 21Shares, Grayscale, Franklin, VanEck, iShares, & Invesco.
Known fees so far are Franklin (0.19%) & VanEck (0.20%).
Now we wait for SEC. https://t.co/7Uo4kIOQg8
— Nate Geraci (@NateGeraci) June 21, 2024
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