Andrew Kang, founder and partner of Mechanism Capital, a crypto venture capital firm has warned against a possible Ethereum dip. Kang claims that Ether could fall to a low as $2,400 after the launch of spot Ethereum ETFs.
This value represents a drop of nearly 30% from Ether’s trading price at $3,410. This forecast represents a significant decline, considering its previous high of $4,000 in March when Bitcoin reached a new record high. Ether also retested the level a few weeks before the US SEC approved Ether exchange-traded funds.
Analysis of Spot ETF impact on Ethereum price
Kang attributes the reasons for his bearish outlook on several key factors. Ethereum has not attracted as much institutional interest as Bitcoin.
Second, investors may not be able to convert their Ether spot into ETFs. Finaly, the network has not had a particularly impressive cash flow, which has impacted its overall valuation.
His question about how much upward movement would be seen by the market from ETH ETFs shows that he is sceptical about their benefits. He also said that Ethereum’s range of prices will be between $2400 and $3,000 after the launch ETFs.
In his comparative analysis Kang suggests that the spot Ether ETFs may only capture 15% of the inflows registered by the spot Bitcoin ETFs.
According to Bloomberg ETF analysts James Seyffart & Eric Balchunas Bitcoin ETF flows are between 10-20%. Spot Bitcoin ETFs received $5 billion in new money during their first six-month period, excluding converted funds.
Kang believes that if this trend holds true for Ethereum, then Ether ETFs will see “real” inflows of around $840 million over a similar time period. He believes that the high expectations of the crypto community are out of line with the actual preferences and choices of traditional investors.
Not all analysts agree with Kang’s pessimistic outlook. Patrick Scott, also known as Dynamo DeFi told Cointelegraph Magazine recently that he believes Ether’s value will move in a similar way to how spot Bitcoin exchange-traded funds have performed. He acknowledged, however, that Ether’s price may not double.
VanEck, an asset manager, says spot Ether ETFS may help drive Ethereum’s price to $22,000 in 2030.
Kang also discusses Ethereum’s investment appeal. He notes its potential as a Web3 App Store, a decentralized settlement layer or a world computer. He argues, however, that the current data make it a challenging proposition for investors.
He also said that Ethereum’s potential to be a cash-flow machine was more promising when DeFis and NFTs were driving fees up. This trend has not been sustained, which led him to compare Ethereum with an overpriced technology stock.
Spot Ether ETFs Cannot 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 if analysts can justify this price in front of their macro fund bosses or family offices.
Kang says that the sudden nature of the approval has left issuers with less time to market these ETFs. Some firms, such as VanEck and Bitwise, have already launched Ethereum advertisements. However the short time frame could affect institutional uptake.
Kang also pointed out that the lack of staking in the proposed spot ETH-based ETFs may be a deterrent. Investors who are considering converting their Ether spot holdings to ETFs may be put off by the lack of staking.
Kang acknowledges that BlackRock, among others, has begun to tokenize Ethereum but doubts this will have a significant impact on the price of ETH.
Disclaimer: The opinions expressed here do not constitute any financial advice. We encourage our readers to do their own research, and determine their risk tolerance, before making any financial decision. Cryptocurrency can be a volatile and high-risk asset.