As a seasoned researcher with extensive experience in the crypto market, I am particularly intrigued by Matt Hougan’s prediction of Ethereum reaching new all-time highs above $5,000 by the end of the year due to the introduction of Ethereum Exchange-Traded Products (ETPs). Having closely followed the market dynamics following the launch of Bitcoin ETPs in January, I share his optimism.
The Chief Investment Officer at Bitwise Asset Management anticipates that the launch of Ethereum Exchange-Traded Products (ETPs) will propel ether (ETH) prices beyond their current record high of $5,000 before the year comes to a close.
The CIO suggests that ETP flows could have a bigger impact on Ethereum than they did on Bitcoin.
The Road to Ethereum’s New All-Time-High
Based on Matt Hougan’s analysis, the upcoming 18 months could see $15 billion in fresh assets poured into Exchange-Traded Products (ETPs). With Ethereum (ETH) priced around $3,400 – a mere 29% below its all-time high – these favorable circumstances may trigger a price surge.
The expected increase in Ethereum’s price is determined by basic economic concepts of supply and demand. However, Exchange-Traded Products (ETPs) do not change Ethereum’s underlying fundamentals. Instead, they introduce new markets and investors, leading to increased demand. This phenomenon was noticeable with Bitcoin after the introduction of spot Bitcoin ETFs in January.
After the introduction of these financial instruments, they have amassed more than double the amount of Bitcoins mined, resulting in a significant price surge for Bitcoin. Approximately 25% price increase was observed following the launch of these financial products in October 2023, while over 110% rise took place as the market started considering their potential impact.
Matt issued a caution that the initial phase following the Ethereum Trust Product (ETP) debut could witness market fluctuations. This instability may arise due to the Grayscale Ethereum Trust’s (ETHE) transformation into an ETP, potentially triggering temporary selling. However, the Chief Investment Officer remains optimistic, believing that by year-end, Ethereum will reach new peak prices. This bullish outlook could be reinforced if more funds flow in than anticipated.
Ethereum’s ETP Gains Might Be Bigger Than Bitcoins
Based on current indicators, Ethereum might experience greater price increases due to ETP inflows compared to Bitcoin. At the time Bitcoin ETPs were introduced, its inflation rate was at approximately 1.7%. In order to preserve balance, an estimated $16 billion in annual Bitcoin purchases were necessary.
As a crypto investor, I’d put it this way: Over the past year, Ethereum’s inflation rate has been a non-issue with no new ETH being added to the existing supply of 120 million. This equilibrium is maintained because Ethereum-powered applications are using up Ethereum at an equal pace as new ETH is being mined daily. With no fresh supply to contend with and growing demand, the prospects for price growth look promising. Furthermore, heightened network activity would organically fuel greater demand for ETH.
One benefit of Ethereum is its “proof of stake” consensus system. In contrast to Bitcoin miners who must frequently sell their newly mined Bitcoins to meet expenses, Ethereum validators incur minimal direct costs and are not pressured to sell their rewards. This diminishes the daily compulsion to sell ETH, resulting in a more balanced supply-demand equation.
Approximately 28% of Ethereum’s total supply is currently being held in staking contracts, rendering it inaccessible for sale. An extra 13% is secured within decentralized finance smart contracts, further diminishing the circulating supply. Consequently, roughly 40% of Ethereum is effectively out of circulation, potentially intensifying the effect of increased demand from ETP inflows.
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2024-07-17 20:05