Ethereum Could Drop 30% After Spot ETH ETFs Launch, Says Crypto VC

Andrew Kang, co-founder and partner at Mechanism Capital, predicts that Ether (ETH) might plummet to $2,400 following the introduction of spot Ether exchange-traded funds (ETFs). Currently, Ether is trading at $3,410, according to CoinGecko. If Kang’s prediction holds true, this would represent a nearly 30% decline.

In a June 23 post on X, Kang highlighted that unlike Bitcoin, Ether garners less institutional interest and offers few incentives to convert spot Ether into ETF form. Additionally, Ethereum’s network cash flows have been unimpressive.

Kang questioned the potential impact of an ETH ETF, stating, “How much upside would an ETH ETF provide? I would argue not much,” and added, “After the ETF launch, my expectation is $2,400 to $3,000.”

This potential drop would be a significant setback for Ether, which reached over $4,000 in March when Bitcoin hit a new all-time high and nearly reached the same level again before the U.S. Securities and Exchange Commission (SEC) approved Ether ETFs.

Limited Institutional Interest

Kang anticipates that spot Ether ETFs will attract only 15% of the flows seen by spot Bitcoin ETFs, which falls within the 10-20% range estimated by Bloomberg ETF analysts Eric Balchunas and James Seyffart. In the first six months, spot Bitcoin ETFs saw $5 billion in new funds, excluding funds converted from spot form. Applying this data to Ethereum, spot Ether ETFs might see $840 million in “true” inflows over the same period.

Kang believes crypto natives have overinflated expectations and are disconnected from traditional finance (tradfi) allocators’ true preferences, suggesting the ETF’s impact is already priced in.

Diverging Opinions

Not all analysts share Kang’s bearish outlook. Patrick Scott, known as Dynamo DeFi, told Cointelegraph Magazine he expects a similar directional movement to spot Bitcoin ETFs but doesn’t foresee Ether’s price doubling. Asset management firm VanEck, on the other hand, predicts spot Ether ETFs could propel Ether to $22,000 by 2030.

Ethereum’s Position

Kang argued that while Ethereum’s pitch as a decentralized financial settlement layer, a world computer, or a Web3 app store could be compelling, the current data paints a different picture. The promising future as a cash flow “machine” driven by decentralized finance and NFTs hasn’t materialized, making Ethereum resemble an overpriced tech stock. With $1.5 billion in annualized revenue over 30 days and a 300x price-to-sales ratio, justifying this price to institutional investors remains challenging.

Impact of Staking and Institutional Moves

The sudden approval of Ether ETFs leaves issuers with less time to market to institutional investors. Bitwise and VanEck have already launched Ethereum-themed ads, but Kang believes the removal of staking from the proposed spot Ether ETFs might deter investors from converting their spot Ether.

While financial institutions like BlackRock are moving into real-world asset tokenization on Ethereum, Kang is uncertain about its impact on Ether’s price. He speculates that the ETH/BTC price ratio could fall from 0.054 to as low as 0.035 over the next year. However, a potential Bitcoin rally to $100,000 in the next six to nine months might pull Ether to a new all-time high.