In a recent prediction, Bitwise Asset Management’s Chief Investment Officer stated that the introduction of Ethereum Exchange-Traded Products (ETPs) will propel ether (ETH) prices to new all-time highs exceeding $5,000 by the end of the year. The CIO suggested that the impact of ETP flows on Ethereum could surpass that of Bitcoin.
With ETPs estimated to attract $15 billion in new assets within the next 18 months and ETH currently hovering around $3,400, which is only 29% below its all-time high, the conditions seem ripe for a substantial price rally. The projected surge in Ethereum’s price hinges on fundamental supply and demand principles. While the introduction of ETPs does not change the underlying fundamentals of ETH, it does introduce new sources of demand.
Drawing on the experience with Bitcoin after the launch of spot Bitcoin ETFs in January, it is evident that these financial instruments can significantly impact the price of the underlying asset. Since their introduction, Bitcoin has seen a substantial price increase, with ETPs acquiring more than double the amount of Bitcoin produced by miners. This surge in demand has led to a notable price appreciation, with Bitcoin rising around 25% post ETP launch and over 110% since the market began factoring in the potential products.
While the CIO remains optimistic about ETH reaching new record highs by the year-end, he cautioned about potential volatility in the initial weeks following the ETP launch. The transition of the $11 billion Grayscale Ethereum Trust (ETHE) to an ETP could trigger short-term selling. Despite this short-term uncertainty, the CIO believes that ETH has the potential for substantial gains, especially if there is higher-than-expected influx of capital.
Several factors indicate that Ethereum could see even more significant gains from ETP inflows compared to Bitcoin. With Ethereum’s inflation rate at 0% and a supply of 120 million ETH, the balance between supply and demand is conducive for price appreciation. The consumption of ETH by various applications running on the Ethereum network offsets the daily creation of new ETH, creating a potential for price surge.
Ethereum’s “proof of stake” consensus mechanism provides an advantage over Bitcoin miners as Ethereum stakers do not face the same operational costs and are not compelled to sell their rewards immediately. This reduction in daily selling pressure on ETH creates a more favorable supply-demand equilibrium. Currently, 28% of ETH is staked and locked in contracts, while an additional 13% is held in decentralized finance smart contracts, reducing the available supply.
The introduction of Ethereum Exchange-Traded Products (ETPs) has the potential to drive ETH prices to new all-time highs. With the right conditions and an equilibrium between supply and demand, Ethereum could experience substantial gains, surpassing Bitcoin in price appreciation. As the market awaits the launch of ETPs and anticipates the influx of new capital, Ethereum’s future looks promising for investors and enthusiasts alike.
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