Bitwise Asset Management’s Chief Investment Officer has predicted that the introduction of Ethereum Exchange-Traded Products (ETPs) will drive ether (ETH) prices to new all-time highs above $5,000 by the end of the year.
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
According to Matt Hougan, 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 all-time high, the conditions are just right for a price rally.
The anticipated price surge for Ethereum depends on fundamental supply and demand principles. While ETPs do not alter the underlying fundamentals of ETH, they introduce new demand sources. This dynamic was observed with BTC following the launch of spot Bitcoin ETFs in January.
Since then, these financial vehicles have gotten more than twice the amount of Bitcoin that miners have produced, leading to a notable price increase. Bitcoin has risen approximately 25% since the ETP launch and over 110% since the market began factoring in the possible products in October 2023.
However, Matt warned that the first few weeks after the ETP launch might experience some volatility. This could happen because the $11 billion Grayscale Ethereum Trust (ETHE) is switching to an ETP, which might cause short-term selling. Despite this, the CIO is confident that by the end of the year, ETH will hit new record highs, with even greater gains possible if more money flows in than expected.
Ethereum’s ETP Gains Might Be Bigger Than Bitcoins
Several factors suggest that Ethereum could experience even higher gains from ETP inflows than Bitcoin. When Bitcoin ETPs launched, the asset’s inflation rate stood at 1.7%, requiring $16 billion of annual BTC purchases to maintain equilibrium.
Ethereum’s inflation rate over the past year has been 0%, with the ETH supply remaining at 120 million. This equilibrium is due to the consumption of ETH by various Ethereum-based applications, which balances out the daily creation of new ETH. With new demand meeting zero new supply, the potential for price appreciation is high. Additionally, increased activity on the Ethereum network would further increase organic demand for ETH.
Another advantage of Ethereum is its “proof of stake” consensus mechanism. Unlike Bitcoin miners, who often need to sell their newly mined BTC to cover operational costs, Ethereum stakers do not face high direct costs and are not compelled to sell their rewards. This reduces the daily forced selling pressure on ETH, creating a more favorable supply-demand balance.
Currently, 28% of all ETH is staked and thus locked in contracts for a set period, making it unavailable for sale. An additional 13% is locked in decentralized finance smart contracts, reducing the available supply. About 40% of ETH is effectively off the market, which could amplify the impact of new demand from ETP inflows.