Crypto VC Anticipates 30% Dip in Ethereum Price After Spot ETH EFTs Launch

Andrew Kang, a founder and partner at Mechanism Capital, a crypto-focused venture capital firm, has warned about a potential Ethereum dip. Kang says Ether could drop to a low of $2,400 following the launch of spot Ethereum exchange-traded funds (ETFs).

This touted value represents a nearly 30% drop from Ether’s current trading price of $3,410. This forecast marks a significant potential decline, given its previous high of over $4,000 attained in March when Bitcoin hit a new all-time high. Ether had also retested this level a few days before the US SEC approved Ether ETFs.

Analysis of Spot ETF Impact on Ethereum Price

Kang attributes his bearish outlook to several key factors. Firstly, Ethereum has not attracted the same level of institutional interest as Bitcoin.

Secondly, there are limited incentives for investors who may wish to convert their spot Ether into the ETF form. Finally, the network’s cash flows have not been particularly impressive, impacting its overall valuation.

His question of how much upward movement the market would see from ETH ETFs shows his skepticism about their benefits. He added that Ethereum’s price range after the launch of the ETFs will be between $2,400 and $3,000.

Moreover, in his comparative analysis, Kang suggests that spot Ether ETFs might only capture about 15% of the inflows recorded by the spot Bitcoin ETFs.

According to Bloomberg ETF analysts James Seyffart and Eric Balchunas, Bitcoin ETF flows have been within the 10-20% range. Spot Bitcoin ETFs garnered $5 billion in new funds during their first six months, excluding converted funds.

If this trend applies to Ethereum, Kang projects that spot Ether ETFs could see around $840 million in “true” inflows over a similar period. He believes the crypto community’s high expectations are out of sync with the actual preferences of traditional finance allocators.

However, not all analysts share Kang’s pessimistic view. Patrick Scott, known as Dynamo DeFi, recently told Cointelegraph Magazine that he expects Ether’s price to move similarly to how spot Bitcoin ETFs have performed. Nonetheless, he acknowledged that Ether may not double in price.

On a more optimistic note, asset manager VanEck says spot Ether ETFs could help drive Ethereum’s price to $22,000 by 2030.

Kang also discusses Ethereum’s investment appeal, noting its potential as a world computer, a decentralized financial settlement layer, or a Web3 app store. However, he argues that the current data makes it a challenging investment proposition.

He also stated that Ethereum’s potential as a cash flow machine seemed more promising when DeFi and NFTs were driving up fees. This trend has not continued, leading him to compare Ethereum to an overpriced tech stock.

Spot Ether ETFs May Not Fly

Furthermore, Kang criticized the current valuation metrics of a 300x price-to-sales ratio, $1.5 billion 30-day annualized revenue, and negative earnings/price-to-earn ratio after inflation. He wonders how analysts justify this price to their macro fund boss or family’s office.

According to Kang, the surprise nature of the approval means that issuers now have less time to promote these ETFs to institutional investors. While some firms like VanEck and Bitwise have already launched Ethereum-themed advertisements, the little time could impact broader institutional uptake.

Kang also highlighted that the exclusion of staking from the proposed spot ETH ETFs could be a limiting factor. The no staking could be a turn-off for investors considering converting their spot Ether holdings into the ETF form.

While acknowledging that BlackRock and others have started tokenization plans on Ethereum, Kang doubts these moves will significantly impact ETH’s price.