Andrew Kang, founder and partner of Mechanism Capital, has raised concerns about the potential negative effects of the upcoming spot Ethereum exchange-traded funds (ETFs) approval in the US on Ethereum’s (ETH) market value. According to Kang, unless Ethereum finds a way to improve its economic model significantly, the introduction of these ETFs could lead to a sharp decline in ETH prices, triggering a “Sell the News” phenomenon upon final approval.
What Could Happen to ETH Prices?
Currently trading around $3,400, ETH might plummet to $2,400 following the launch of spot Ethereum ETFs in the US, predicts Kang. This represents an approximate 30% drop from the current price. His forecast is based on the observation that ETH has garnered less institutional interest compared to Bitcoin (BTC), reducing the incentive for investors to turn to spot Ethereum ETFs.
Why Are Expectations Misaligned?
Kang elaborated on his views in a June 23 article, stating that the price potential of spot Ethereum ETFs is limited. He anticipates ETH’s price to hover between $2,400 and $3,000 post-launch, a notable decline from its March high of over $4,000. This diminished outlook comes as the US Securities and Exchange Commission (SEC) approved spot Ethereum ETFs.
Additionally, Kang forecasts that the anticipated inflows into spot Ethereum ETFs will be significantly smaller than those for spot Bitcoin ETFs. He estimates these ETFs will attract only 15% of the funds that spot Bitcoin ETFs have garnered, which saw $5 billion in new inflows within the first six months.
Actionable Insights for Investors
– Consider hedging positions if holding substantial amounts of ETH.
– Monitor institutional interest and inflow data post-ETF launch.
– Evaluate ETH’s economic model for any potential improvements.
Ethereum’s potential as a significant revenue generator appeared more promising during the decentralized finance (DeFi) and NFT peak periods. However, that momentum has not sustained, leading Kang to compare ETH to an overvalued tech stock. With annual revenue of $1.5 billion and a 300x price-to-sales ratio, and negative earnings post-inflation, convincing traditional investors about ETH’s valuation could be challenging.
Moreover, the exclusion of staking options from the spot Ethereum ETFs submitted to the SEC could deter investors. While institutions such as BlackRock are looking into real-world asset tokenization on Ethereum, Kang doubts its immediate impact on ETH’s price.
Despite Kang’s pessimistic view, other analysts remain optimistic. Industry analyst Patrick Scott, known as Dynamo DeFi, foresees a similar trend to spot Bitcoin ETFs but does not expect ETH’s price to double due to the ETFs. Additionally, asset management firm VanEck predicts that spot Ethereum ETFs might elevate ETH’s price to $22,000 by 2030.