Ethereum ETF Launch Could See 30% Drop In ETH Price, Here is Why

The recently approved Ethereum spot ETFs could be a downer for ETH’s short-term price performance, says Andrew Kang, founder of the crypto-focussed venture capital firm Mechanism Capital.

In an article posted to X yesterday, Kang argued that the ETFs likely won’t benefit ETH’s price unless the network can figure out a way to improve its economics and attract investors. Kang forecasts a price drop following the launch of the ETFs to as low as US$2,400 (AU$3,600) — a fall of almost 30% from its current price of just over US$3,340 (AU$5,020).

Related: Asset Managers Rush to Update Ether Fund Applications as July Deadline Looms 

How Could ETFs Lead To A Price Drop?

It seems counter-intuitive that the launch of Ethereum ETFs could actually cause ETH’s price to fall, especially after what we’ve seen with the Bitcoin ETFs. So, how does Kang say this could happen?

Firstly, he argues the true inflows into the Bitcoin ETFs have been much lower than it seems. Excluding rotations from Grayscale Bitcoin Trust (GBTC), spot rotations and basis trades (trading BTC futures for spot ETF), Kang says there’s been only about US$5 billion worth of true inflows to the BTC ETFs—a lot less than the US$50 billion often bandied around.

Extrapolating this to Ethereum, Kang estimates the ETH ETFs might see around 15% of the inflows the Bitcoin ETFs saw. And after making a few other adjustments to account for differences between ETH and BTC, Kang lands on an estimate of around US$0.84 billion “true net buying” of ETH ETFs.

He says this level of “true net buying” of the ETFs is much lower than the derivative trading front-running the ETFs, which he estimates at around US$2.8 billion—suggesting “that the ETF is more than priced in.” 

Lack Of TradFi Interest In Ethereum, Says Kang

Kang also argues there’s much less TradFi and institutional interest in Ethereum than Bitcoin and that this isn’t fully appreciated by many crypto investors:

Personally, I believe that the expectations of crypto natives are overinflated and disconnected from the true preferences of tradfi allocators.

Andrew Kang, Founder of Mechanism Capital

A key part of this lack of interest, according to Kang, is Ethereum’s misfiring economics which aren’t looking all that attractive at the moment and will reduce institutional enthusiasm for the ETFs:  

Ethereum is a cash machine, but at $1.5B 30d annualized revenue, a 300x PS ratio, negative earnings/PE ratio after inflation, how will analysts justify this price to their daddy’s family office or their macro fund boss

Andrew Kang, Founder of Mechanism Capital

Much of the upside Bitcoin saw around the launch of its ETFs was from institutional buying in the lead up to the ETFs. Kang doesn’t see this happening for Ethereum.

Pessimistic View Not The Consensus 

This all sounds pretty pessimistic, does Kang think ETH is finished? No, not finished, but he does see the price falling considerably:

Before the ETF launch, I expect ETH to trade from $3,000 to $3,800. After the ETF launch my expectation is $2,400 to $3,000.

Andrew Kang, Founder of Mechanism Capital

Kang says he could see ETH recovering back to all-time highs if BTC rallies over US$100,000 and in the very long-term he’s more optimistic, particularly around tokenisation.

Related: Breaking: US SEC Ends Investigation into Ethereum 2.0, Says No Further Legal Action Will Be Taken 

Not everyone agrees with Kang though: earlier this month asset management firm VanEck said ETH would continue its strong performance and predicted it could top US$22,000 by the end of the decade.