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Could Ethereum’s latest financial product be its undoing? The expert intervenes
- Spot Ether ETFs could reduce the price of Ethereum by up to $2,400.
- Institutional interest in Ethereum is lower than in Bitcoin, which impacts ETF conversion rates.
AS Ethereum [ETH] follows Bitcoin in terms of performance, its price has seen a decline of 5.1% in the last 24 hours, bringing it to a current valuation of $3,315.
This recent price decline reflects broader market trends and investor sentiment. Despite this decline, analysts expect a further decline potentially driven by the entry of new financial products onto the market.
Andrew Kang of Capital Mechanism speculate that the introduction of Ethereum spot Exchange Traded Funds (ETFs) could push the price of Ethereum to as low as $2,400.
ETH ETF to bring down the price of Ethereum?
The logic behind Kang’s prediction lies in the relative lack of institutional interest in Ethereum compared to Bitcoin.
The founder of Mechanism Capital revealed that the absence of strong incentives for converting spot ETH into ETFs, coupled with insignificant network cash flows, presents a challenging outlook for Ethereum’s immediate future in the ETF market.
These factors may contribute to Ethereum’s struggle to maintain its market price in the face of evolving market structures and investor preferences.
Furthermore, the potential influx of ETH into the ETF landscape is estimated to attract approximately 15% of the flows garnered by Bitcoin ETFs, based on extrapolations from the performance of Bitcoin ETFs.
Initial data indicates that Bitcoin spot ETFs attracted around $5 billion in new funds within six months of their launch.
Applying these figures to Ethereum, it is predicted that Ethereum-based ETFs could see approximately $840 million in actual inflows over a similar time frame.
In this regard, Kang expresses skepticism about the alignment between the expectations of the crypto community and the preferences of traditional financial allocators (tradfi), indicating that the market may have already “priced in” the effects of the ETF launch.
Challenges in market perception
Additionally, the concept of Ethereum as a decentralized financial settlement layer and foundation for Web3 applications has potential. However, according to Kang, current data suggests it could be a challenging sell.
In particular, the reduction in network transaction fees due to decreased activity in decentralized finance and non-fungible tokens has changed the outlook, perhaps comparing ETH to overvalued tech stocks in terms of financial metrics.
Furthermore, according to Kang, the recent regulatory green light for Ethereum ETFs was somewhat unexpected, giving issuers limited time to develop and disseminate effective marketing strategies.
He added that the removal of staking options from ETF proposals could further dissuade investors from converting their holdings, impacting the expected inflow of capital into these funds.
Concluding the discussion, Kang observed:
“Does this mean ETH will go to zero? Of course not, at a certain price it will be considered good value and when BTC goes up in the future, it will be dragged along with it to some extent. Before the ETF launches, I expect ETH to trade from $3,000 to $3,800. After the ETF launch my expectation is between $2,400 and $3,000. However, if BTC moves to $100,000 at the end of Q4/Q1 2025, this could drag ETH towards ATHs, but with ETHBTC falling. “
Source: Andrew Kang on X
Are there any bearish signals from ETH?
In light of Andrew Kang’s pessimistic view on Ethereum, it is worth examining Ethereum fundamentals to validate these concerns.
Data from CryptoQuant reveals a worrying trend in one of Ethereum’s key metrics: there has been a notable increase in Ethereum deposits on exchanges, suggesting a potential increase in selling pressure.
Source: CryptoQuant
This indicator aligns with that of IntoTheBlock datawhich shows a significant reduction in large ETH transactions (those exceeding $100,000).
Light That of Ethereum [ETH] Price forecast 2024-2025
These transactions have decreased from more than 10,000 at the end of last month to less than 4,000 today.
Source: IntoTheBlock
Despite these bearish signals, a recent report from AMBCrypto highlights a increase in Ethereum daily active addressesadding a layer of complexity to market dynamics.