As the cryptocurrency market continues to evolve, Bitwise Asset Management’s Chief Investment Officer has made a bold prediction regarding the future of Ethereum. According to the CIO, the introduction of Ethereum Exchange-Traded Products (ETPs) could drive the price of ether (ETH) to new all-time highs above $5,000 by the end of the year. This forecast is based on the premise that ETP flows could have a significant impact on Ethereum, surpassing the effects seen with Bitcoin.
The anticipated price surge for Ethereum hinges on fundamental supply and demand principles. While ETPs themselves do not alter the underlying fundamentals of ETH, they do introduce new sources of demand into the market. This dynamic was evident in the case of Bitcoin following the launch of spot Bitcoin ETFs earlier this year. The influx of capital through these financial instruments exceeded the amount of Bitcoin mined by a considerable margin, leading to a substantial price increase.
With ETPs projected to attract $15 billion in new assets over the next 18 months and ETH currently trading at around $3,400, only 29% below its previous all-time high, the conditions appear to be favorable for a price rally. However, it is important to note that the initial weeks after the launch of ETPs could be volatile. The transition of the $11 billion Grayscale Ethereum Trust (ETHE) to an ETP format may trigger short-term selling pressure in the market.
Several factors suggest that Ethereum might experience even greater gains from ETP inflows compared to Bitcoin. One key difference lies in the inflation rates of the two assets. While Bitcoin has an inflation rate of 1.7%, Ethereum has maintained a 0% inflation rate over the last year, with the ETH supply remaining steady at 120 million. This equilibrium is maintained through the consumption of ETH by various applications built on the Ethereum network.
Another advantage that Ethereum holds is its “proof of stake” consensus mechanism. Unlike Bitcoin miners who often need to sell their newly minted BTC to cover operational costs, Ethereum stakers do not face similar pressures. This results in lower daily selling pressure on ETH, creating a more balanced supply-demand relationship. Currently, a significant portion of ETH is staked or locked in smart contracts, making it unavailable for immediate sale.
The introduction of Ethereum Exchange-Traded Products has the potential to have a transformative impact on the price of ether. By bringing in new sources of demand and leveraging unique features of the Ethereum network, ETPs could drive ETH prices to new all-time highs. While short-term volatility may be expected following the launch of ETPs, the long-term outlook for Ethereum appears optimistic. With organic demand on the rise and a favorable supply-demand balance, ETH stands to benefit from the growing interest in cryptocurrency investments.