Andrew Kang, a crypto VC, shared his insights in a recent article published on X (formerly Twitter) about the potential impact of spot Ethereum ETFs (ETH), which are expected to be launched in the U.S. shortly.
Andrew Kang, a prominent figure within the cryptocurrency industry, is known for his role as co-founder and a partner of Mechanism Capital. This firm focuses on cryptocurrency investment, especially in decentralized finance. Mechanism Capital, founded in September 2020 invests in a variety of aspects of the crypto-market, including prop trading, mining and ventures.
Kang worked previously in portfolio management and venture capitalism at Digital Capital Management. This gave him a solid background in financial and investing strategies within the crypto-space.
Kang is well-known for his active participation and analysis of DeFi projects. He often shares his insights on platforms such as Twitter. He has invested in crypto projects like Saddle Finance, Blast and Perpetual protocol, and led Mechanism Capital’s investment in notable projects Nansen Biconomy Highstreet and XDEFI.
In his article for X, Kang compares and contrasts the impact of upcoming spot ETH (ETH) ETFs with the previously launched spot Bitcoin ETFs. He notes that spot Bitcoin (BTC) ETFs have opened the market to many new buyers and significantly impacted BTC’s dynamics. Since the BlackRock ETF application, BTC has increased substantially, outperforming ETH recently.
He believes that the impact of spot ETFs for Ethereum will be less dramatic until Ethereum’s economic fundamentals improve significantly. He points out, that while spot Bitcoin ETFs have accumulated an impressive amount of assets under management (AUM), true net inflows are closer to $5billion, after accounting for existing assets and market rotations. Kang estimates spot ETH ETFs could see lower inflows of $0.5 billion to $1 billion within six months.
Kang points out the difficulties in convincing investors in traditional finance (TradFi), despite Ethereum’s applications in decentralized financial (DeFi) or NFTs. He says that current economic indicators, such as growth rate and fee generation for Ethereum, do not convince institutional investors to invest in significant amounts. He believes that ETH will experience a modest price increase before the launch of spot ETH ETFs, but expects a range between $2400 and $3800 after the launch. He says that if BTC gains substantially, it may drag ETH along. However, ETH might not be able to keep up.
He also points out that Ethereum’s unique features, such as staking, DeFi, and utilization, make it less appealing for conversion into spot ETFs compared to Bitcoin. He believes that this could lead lower initial flows into ETFs. Despite these challenges Kang remains cautiously positive about ETH’s prospects in the long term, especially if large financial institutions like BlackRock are successful at integrating blockchain technology into traditional financial systems.
Kang’s thesis is that, while the launch in the U.S. of spot ETH-ETFs will bring new capital to Ethereum, the impact and scale will be significantly less than what we saw with spot Bitcoin-ETFs. He believes the true net buying is likely to be lower and that the market has already priced much of the anticipated demand. He predicts that the ETH/BTC rate will continue to decline over the next 12 months.
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