The Chief Investment Officer of Bitwise Asset Management has made a bold prediction regarding the future of Ethereum prices. He believes that the introduction of Ethereum Exchange-Traded Products (ETPs) will lead to a significant price rally for ether (ETH), pushing it to new all-time highs above $5,000 by the end of the year. This forecast is based on the potential influx of $15 billion in new assets attracted by ETPs over the next 18 months. With ETH currently trading around $3,400, just 29% below its all-time high, the conditions are ripe for a price surge.
The anticipated price surge for Ethereum is hinged on fundamental supply and demand principles. While ETPs do not alter the underlying fundamentals of ETH, they introduce new sources of demand into the market. The impact of such dynamics was observed with Bitcoin following the launch of spot Bitcoin ETFs in January. These financial vehicles accumulated more than twice the amount of Bitcoin that miners produced, leading to a significant price increase for Bitcoin. The introduction of Ethereum ETPs could potentially have a similar effect on the price of Ethereum.
Despite the positive outlook for Ethereum prices, the initial weeks following the launch of ETPs may experience some volatility. This could be attributed to the fact that the $11 billion Grayscale Ethereum Trust (ETHE) is transitioning to an ETP, potentially resulting in short-term selling pressure. However, the Chief Investment Officer remains optimistic that by the end of the year, ETH will reach new record highs. He believes that even greater gains are possible if more money flows into the market than initially anticipated.
Several factors suggest that Ethereum stands to gain even more from ETP inflows than Bitcoin. Ethereum’s inflation rate over the past year has been 0%, with the ETH supply remaining at 120 million. This equilibrium is maintained by the consumption of ETH by various applications on the Ethereum network, counterbalancing the creation of new ETH. The potential for price appreciation is high with new demand meeting zero new supply. Additionally, Ethereum’s “proof of stake” consensus mechanism reduces the daily forced selling pressure on ETH, creating a more favorable supply-demand balance compared to Bitcoin.
Currently, 28% of all ETH is staked and locked in contracts for a specific period, making it unavailable for sale. An additional 13% is locked in decentralized finance smart contracts, further reducing the available supply of ETH. Approximately 40% of ETH is effectively off the market, which could amplify the impact of new demand stemming from ETP inflows. This locked supply could contribute to significant price movements for Ethereum in the coming months.
The introduction of Ethereum Exchange-Traded Products has the potential to drive Ether prices to new all-time highs above $5,000 by the end of the year. While short-term volatility may be expected following the launch of ETPs, the long-term outlook for Ethereum remains positive. With favorable supply and demand dynamics, as well as a significant portion of ETH supply locked away, Ethereum could see substantial price appreciation as a result of increased demand from ETP inflows. Investors and traders alike will be closely watching the market as these developments unfold.
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